-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVT/d6El2o01+8VFtQFHYevWqCjX5cT/mAviCkXLN8TZ0z3X5lmw0b9CXODOzZjc zBELD83S8aGVryJDLOSuCQ== 0000950123-97-003198.txt : 19970415 0000950123-97-003198.hdr.sgml : 19970415 ACCESSION NUMBER: 0000950123-97-003198 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 28 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970414 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER DIRECT INC CENTRAL INDEX KEY: 0000320333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 138053260 STATE OF INCORPORATION: NV FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08056 FILM NUMBER: 97580078 BUSINESS ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2018653800 MAIL ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 FORMER COMPANY: FORMER CONFORMED NAME: HORN & HARDART CO /NV/ DATE OF NAME CHANGE: 19920703 10-K/A 1 AMENDMENT TO FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A1 AMENDMENT TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 28, 1996 Commission file number 1-12082 HANOVER DIRECT, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter DELAWARE 13-0853260 - ---------------------------------- ----------------------------------------- (State of incorporation) (I.R.S. Employer Identification No.) 1500 HARBOR BOULEVARD, WEEHAWKEN, NEW JERSEY 07087 - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 201-863-7300 Securities registered pursuant to Section 12(b) of the Act: name of each exchange Title of each class which registered Common Stock, $.66 2/3 par Value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form. As of March 24, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant was $38,280,286 (based on the closing price of the Common Stock on the American Stock Exchange on March 24, 1997). As of March 24, 1997, the registrant had 144,318,452 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Company's definitive proxy statement to be filed by the Company pursuant to Regulation 14A is incorporated into items 10, 11, 12 and 13 of Part III of this Form 10-K. 2 Explanatory Note This Form 10-K/A1 is being filed by Hanover Direct, Inc., a Delaware corporation (the "Company"), as an amendment to its Annual Report on Form 10-K for the fiscal year ended December 28, 1996, filed March 28, 1997, to add certain additional exhibits in Part IV thereof. 3 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to report to be signed on its behalf by the undersigned, thereunto duly authorized. HANOVER DIRECT, INC. (registrant) Dated: April 11, 1997 By: /s/ Rakesh K. Kaul ------------------------------- Rakesh K. Kaul President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment to report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date indicated below. Principal Financial Officer: /s/ Larry J. Svoboda - --------------------------------- Larry J. Svoboda Senior Vice President and Chief Financial Officer Board of Directors: /s/ Ralph Destino /s/ Edmund R. Manwell - --------------------------------- --------------------------------- Ralph Destino, Director Edmund R. Manwell, Director /s/ J. David Hakman /s/ Jan du Plessis - --------------------------------- --------------------------------- J. David Hakman, Director Jan du Plessis, Director /s/ Rakesh K. Kaul /s/ Alan G. Quasha - --------------------------------- --------------------------------- Rakesh K. Kaul, Director Alan G. Quasha, Director /s/ Howard M.S. Tanner - --------------------------------- --------------------------------- Theodore H. Kruttschnitt, Howard M.S. Tanner, Director Director /s/ Elizabeth Valk Long /s/ Robert F. Wright - --------------------------------- --------------------------------- Elizabeth Valk Long, Director Robert F. Wright, Director Dated: April 11, 1997 4 EXHIBIT INDEX
EXHIBIT NUMBER ITEM 601 OF DESCRIPTION OF DOCUMENT AND INCORPORATION REGULATION S-K BY REFERENCE WHERE APPLICABLE - -------------- ----------------------------- PAGE NO. --- 2.1 Asset Purchase Agreement dated as of December 1, 1994 among the Company, LWI Holdings, Inc., Bankers Trust Company, Leichtung, Inc. and DRI Industries, Inc. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 2.2 Stock Purchase Agreement dated as of February 16, 1995 among the Company, Hanover Holdings, Inc., Aegis Safety Holdings, Inc., F.L. Holdings, Inc., Roland A.E. Franklin, Martin E. Franklin, Jonathan Franklin, Floyd Hall, Frederick Field, Homer G. Williams, Frank Martucci, Norm Thompson Outfitters, Inc. and Capital Consultants, Inc. (as agent) (collectively, the "Aegis Sellers"). Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 2.3 Stock Purchase Agreement dated as of May 19, 1995 by and among the Company, Austad Holdings, Inc. ("AHI"), The Austad Company ("TAC"), David B. Austad ("DBA"), Denise Austad ("DA"), David Austad, as custodian ("DBAC"), Oscar Austad, Dorothy Austad, Randall Austad, Kristi Austad, Lori Miller, Robin Miller, Kerri Derenge, Sharon Stahl, Lori Miller, as custodian, Dorothy Austad, as attorney-in-fact, and
5 Kara Miller (collectively, the "Austad Individuals"). Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 2.4 Agreement and Plan of Corporate Separation and Reorganization dated as of February 16, 1996 by and among the Company, AHI, TAC, DBA, DBAC, and DA. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 3.1 Restated Certificate of Incorporation.*** 3.2 By-laws.*** 4.1 Warrant Agreement dated as of October 25, 1991 ("NAR Warrant") between the Company* and NAR Group Limited ("NAR") for 279,110 shares of Common Stock. Incorporated by reference to the Company's* Current Report on Form 8-K dated October 25, 1991. 4.2 Registration Rights Agreement dated as of July 8, 1991 among the Company*, NAR and Intercontinental Mining & Resources Limited ("IMR"). Incorporated by reference to the Company's* Current Report on Form 8-K Dated July 10, 1991. 4.3 Warrant Agreement dated as of January 1, 1994 between the Company and Sears Shop At Home Services, Inc. ("Sears"). Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 6 4.4 Registration Rights Agreement dated as of February 16, 1995 among the Company and the Aegis Sellers. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 4.5 Warrant Agreement dated as of July 8, 1991 between the Company and IMR for 1,750,000 shares of Common Stock. Incorporated by reference to the Company's Current Report on form 8-K dated July 10, 1991. 4.6 Warrant Agreement dated as of October 25, 1991 between the Company and NAR for 931,791 shares of Common Stock. Incorporated by reference to the Company's Current Report on form 8-K dated October 25, 1991. 4.7 Second Amendment to Warrant Agreement and Warrant Certificate for 931,791 shares of Common Stock, between the Company and NAR dated as of November 13, 1995. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 4.8 First Amendment to Warrant Agreement and Warrant Certificate for 1,750,000 shares of Common Stock, between the Company and IMR dated as of November 13, 1995. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 4.9 First Amendment to Warrant Agreement and Warrant Certificate for 279,110 shares of Common Stock, between the Company and NAR dated as of November 13, 1995. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 7 4.10 Second Amendment to Warrant Agreement between the Company and IMR dated as of August 23, 1996. FILED HEREWITH. 4.11 Second Amendment to Warrant Agreement between the Company and NAR dated as of August 23, 1996.*** 4.12 Third Amendment to Warrant Agreement between the Company and NAR dated as of August 23, 1996.*** 10.1 Stock Option Plan, as amended. Incorporated by reference to the Company's* Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.2 Account Purchase Agreement dated as of December 21, 1992 among the Company*, Hanover Direct Pennsylvania, Inc. ("HDPI"), Brawn of California, Inc. ("Brawn") and General Electric Capital Corporation ("GECC"). Incorporated by reference to the Company's* Annual Report on Form 10-K for the fiscal year ended December 26, 1992. 10.3 Amendment No. 1 to the Account Purchase Agreement dated as of July 12, 1993 among the Company*, HDPI, Brawn, Gump's By Mail, Gump's, Gump's Holdings and GECC. Incorporated by reference to the Company's* Current Report on Form 8-K dated July 12, 1993. 8 10.4 Amendment No.2 to the Account Purchase Agreement dated as of June 1, 1995 among the Company, HDPI, Brawn, Gump's, Gump's By Mail, Gump's Holdings and GECC. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5 Waiver and Amendment No. 3 to the Account Purchase Agreement dated as of December 14, 1995 among the Company, HDPI, Brawn and GECC. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 10.6 Amendment No. 4 to the Amended and Restated Account Purchase Agreement dated as of June 28, 1996 among the Company, HDPI, Brawn, Gump's, Gump's by Mail, Gump's Holdings and GECC. FILED HEREWITH. 10.7 Form of Stock Option Agreement between the Company* and certain Directors of the Company, as amended. Incorporated by reference to the Company's* Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.8 Termination of Employment Agreement and Employment and Consulting Agreement dated as of December 31, 1995 between the Company and Jack E. Rosenfeld.*** 10.9 Registration Rights Agreement between the Company and Rakesh K. Kaul, dated as of August 23, 1996. FILED HEREWITH. 9 10.10 Form of Indemnification Agreement among the Company* and each of the Company's directors and executive officers. Incorporated by reference to the Company's* Current Report on Form 8-K dated October 25, 1991. 10.11 Letter Agreement dated May 5, 1989 among the Company*, Theodore H. Kruttschnitt, J. David Hakman and Edmund R. Manwell. Incorporated by reference to the Company's* Current Report on Form 8-K dated May 10, 1989. 10.12 Hanover Direct, Inc. Savings Plan as amended. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 1, 1994. 10.13 Restricted Stock Award Plan. Incorporated by reference to the Company's* Registration Statement on Form S-8 filed on February 24, 1993, Registration No. 33-58760. 10.14 All Employee Equity Investment Plan. Incorporated by reference to the Company's* Registration Statement on Form S-8 filed on February 24, 1993, Registration No. 33-58756. 10.15 Executive Equity Incentive Plan, as amended.*** 10.16 Form of Supplemental Retirement Plan. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended January 1, 1994. 10 10.17 1996 Stock Option Plan. Incorporated by reference to the Company's 1996 Proxy Statement. 10.18 Loan and Security Agreement dated as of November 14, 1995 by and among Congress Financial Corporation ("Congress"), Hanover Direct Pennsylvania, Inc. ("HDPA"), Brawn of California, Inc. ("Brawn"), Gump's by Mail, Inc. ("Gump's by Mail"), Gump's Corp.("Gump's"), The Company Store, Inc. ("The Company Store") , Tweeds, Inc. ("Tweeds"), LWI Holdings, Inc.("LWI"), Aegis Catalog Corporation ("Aegis"), Hanover Direct Virginia, Inc. ("HDVA") and Hanover Realty Inc. ("Hanover Realty"). Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 10.19 First Amendment to Loan and Security Agreement dated as of February 22, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 10.20 Second Amendment to Loan and Security Agreement dated as of April 16, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 10.21 Third Amendment to Loan and Security Agreement dated as of May 24, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 11 10.22 Fourth Amendment to Loan and Security Agreement dated as of May 31, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 10.23 Fifth Amendment to Loan and Security Agreement dated as of September 11, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 10.24 Sixth Amendment to Loan and Security Agreement dated as of December 5, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 10.25 Seventh Amendment to Loan and Security Agreement dated as of December 18, 1996 by and among Congress, HDPI, Brawn, Gump's by Mail, Gump's, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. FILED HEREWITH. 10.26 Subordination Agreement, dated as of November 14, 1995, among Congress, IMR, and the Trustee. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 30, 1995. 10.27 Long-Term Incentive Plan for Rakesh K. Kaul. FILED HEREWITH. 10.28 Short-Term Incentive Plan for Rakesh K. Kaul. *** 12 10.29 Employment Agreement dated as of March 7, 1996 between the Company and Rakesh K. Kaul.*** 10.30 Tandem Option Plan dated as of August 23, 1996 between the Company and Rakesh K. Kaul.*** 10.31 Closing Price Option dated as of August 23, 1996 between the Company and Rakesh K. Kaul.*** 10.32 Performance Price Option dated as of August 23, 1996 between the Company and Rakesh K. Kaul.*** 10.33 Six-Year Stock Option dated as of August 23, 1996 between NAR and Rakesh K. Kaul.*** 10.34 Seven-Year Stock Option dated as of August 23, 1996 between NAR and Rakesh K. Kaul.*** 10.35 Eight-Year Stock Option dated as of August 23, 1996 between NAR and Rakesh K. Kaul.*** 10.36 Nine-Year Stock Option dated as of August 23, 1996 between NAR and Rakesh K. Kaul.*** 10.37 Letter of Credit, dated December 18, 1996, from Swiss Bank Corporation, New York Branch ("Swiss Bank") in favor of Fleet National Bank, as trustee ("Fleet Bank").*** 10.38 Reimbursement Agreement, dated as of December 18, 1996, by and among Swiss Bank and the Company.*** 13 10.39 Hanover Indemnity Agreement, dated as of December 18, 1996, between Richemont Finance S.A. ("Richemont") and the Company, HDPI, Brawn, Gump's, Gump's by Mail, The Company Store, Tweeds, LWI, Aegis, HDVA and Hanover Realty. *** 10.40 Subordination Agreement, dated as of December 18, 1996, between Congress and Swiss Bank. FILED HEREWITH. 10.41 Subordination Agreement, dated as of December 18, 1996 between Congress and Richemont. FILED HEREWITH. 10.42 Series A Note Agreement, dated as of November 9, 1994, between the Company and Norwest Bank Minnesota, N.A. ("Norwest"), as trustee. FILED HEREWITH. 10.43 Placement Agreement, dated as of November 9, 1994, by and between the Company and NationsBank of North Carolina, N.A. FILED HEREWITH. 10.44 Remarketing and Interest Services Agreement, dated as of November 9, 1994, by and between the Company and NationsBank of North Carolina, N.A. FILED HEREWITH. 10.45 First Supplemental Series A Note Agreement, dated as of December 29, 1995, between the Company and Norwest. FILED HEREWITH. 10.46 First Amendment to Placement Agreement, dated as of December 29, 1995 by and between the Company and NationsBank of North Carolina, N.A. FILED HEREWITH. 14 10.47 First Amendment to Remarketing and Interest Services Agreement, dated as of December 29, 1995 by and between the Company and NationsBank of North Carolina, N.A. FILED HEREWITH. 10.48 Second Supplemental Series A Note Agreement, dated as of December 18, 1996, between the Company and Norwest. *** 10.49 Second Amendment to Series A Note, dated December 18, 1996 made by the Company. FILED HEREWITH 10.50 Second Amendment to Placement Agreement, dated as of December 18, 1996 by and between the Company and NationsBank of North Carolina, N.A. *** 10.51 Second Amendment to Remarketing and Interest Services Agreement, dated as of December 18, 1996 by and between the Company and NationsBank of North Carolina, N.A. *** 10.52 Series B Note Agreement dated as of April 25, 1995, between the Company and Norwest. FILED HEREWITH. 10.53 [intentionally deleted] 10.54 [intentionally deleted] 10.55 First Amendment to Series B Note Agreement, dated as of December 29, 1995, between the Company and Norwest. FILED HEREWITH. 15 10.56 Second Supplemental to Series B Note Agreement, dated as of December 18, 1996, between the Company and Norwest. FILED HEREWITH. 10.57 Second Amendment to Series B Note, dated December 18, 1996 made by the Company. *** 10.58 Series B Letter of Credit, dated as of December 18, 1996, issued by Swiss Bank. *** 10.59 [intentionally deleted] 10.60 NAR Promissory Note dated as of September 11, 1996. *** 10.61 Series A Letter of Credit, dated as of December 18, 1996, issued by Swiss Bank. *** 10.62 First Amendment to Series A Note, dated as of December 29, 1995 made by Hanover Direct, Inc. FILED HEREWITH. 10.63 $10,000,000 Series B Note, dated as of April 27, 1995 and made by Hanover Direct, Inc. FILED HEREWITH. 10.64 First Supplemental Series B Note Agreement, dated as of December 29, 1995. FILED HEREWITH. 10.65 $10,000,000 Series A Note, dated as of November 9, 1994 and made by Hanover Direct, Inc. FILED HEREWITH. 11 Computation of Per Share Earnings. *** 21.1 Subsidiaries of the Registrant. *** 23.1 Consent of Independent Public Accountants. *** 27.1 Financial Data Schedule. **/*** - -------------- * Hanover Direct, Inc., a Delaware corporation, is the successor by merger to The Horn & Hardart Company and The Hanover Companies. ** EDGAR filing only. *** Previously submitted with Hanover's Annual Report on Form 10-K, filed on March 28, 1997. EX-4.10 2 SECOND AMENDMENT TO WARRANT AGREEMENT 1 EXHIBIT 4.10 SECOND AMENDMENT TO WARRANT AGREEMENT BETWEEN HANOVER DIRECT, INC. AND INTERCONTINENTAL MINING & RESOURCES LIMITED This Second Amendment, dated as of August 23, 1996 (this "Amendment"), to that certain Warrant Agreement, dated as of July 8, 1991, between Intercontinental Mining & Resources Limited ("IMR") and The Horn & Hardart Company ("H&H"), predecessor-in-interest to Hanover Direct, Inc. (the "Company"). WHEREAS, H&H and IMR are parties to that certain Warrant Agreement, dated as of July 8, 1991, amended by a First Amendment to Warrant Agreement and Warrant Certificate, dated as of November 13, 1995 (as so amended, the "Warrant Agreement"). WHEREAS, pursuant to an Assumption Agreement, dated as of September 7, 1993, between H&H and the Company, the Company assumed the due and punctual performance and observance of each and every covenant and condition of H&H in the Warrant Agreement. WHEREAS, the Company and IMR desire to further amend the Warrant Agreement. NOW, THEREFORE, in consideration of the premises and agreements herein contained and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: A. Amendments to the Warrant Agreement. The Warrant Agreement is hereby amended as follows: Section 5 is hereby amended by adding a new subparagraph (c) as follows and redesignating subparagraphs 5(c) and 5(d) as subparagraphs 5(d) and 5(e), respectively: "(c) The Holder may also exercise all, but not less than all, of its Warrants in a "cashless" or "net-issue" exercise of each such Warrant by presentation and surrender of the Holder's Warrant Certificate to the Company at its principal executive offices with a Cashless Exercise Form annexed hereto duly executed (a "Cashless Exercise"). In the event of a Cashless Exercise, the Holder shall exchange each Warrant subject to a Cashless Exercise for that number of Warrant Shares stated in the Agreement, as the same may have been duly adjusted from time to time, multiplied by a fraction, the numerator of which shall 2 be the difference between (x) the then current market price per share of Common Stock (as defined in Section 1(d) of Annex B hereto) and (y) the Exercise Price per share of Common Stock for each such warrant, and the denominator of which shall be the then current market price per share. The Cashless Exercise Form shall set forth the calculation upon which the Cashless Exercise is based." B. Ratification. Except as expressly amended hereby all terms and provisions of the Warrant Agreement, as heretofore amended, remain unamended, unmodified and in full force and effect. The Warrant Agreement, as amended hereby, and all rights and powers created thereby, is in all respects ratified and confirmed. From and after the date hereof, all references to the Warrant Agreement shall be deemed to mean the Warrant Agreement as amended by this Amendment. C. Counterparts. This Amendment may be executed in counterparts, each of which, when executed and delivered, shall for all purposes be deemed an original. Both of the counterparts, when taken together, shall constitute but one and the same Amendment. D. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws. E. Definitions. Except as otherwise expressed or provided or unless the context otherwise requires, all terms used herein which are defined in the Warrant Agreement shall have the meanings ascribed to them in the Warrant Agreement. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Wayne P. Garten --------------------------------- Name: Wayne P. Garten Title Executive Vice President and CFO INTERCONTINENTAL MINING & RESOURCES LIMITED By: /s/ Thomas A. Huser --------------------------------- Name: Thomas A. Huser Title Attorney-In-Fact -3- 4 CASHLESS EXERCISE FORM (TO BE EXECUTED UPON EXERCISE OF WARRANT PURSUANT TO SECTION 5(C)) To Hanover Direct, Inc.: The undersigned hereby irrevocably elects to exchange its Warrants for such number of shares of Common Stock set forth on the calculation attached hereto pursuant to the Cashless Exercise provisions of Section 5(c) of the Warrant Agreement, dated as of July 8, 1991, and a First Amendment thereto, dated as of November 13, 1995, between Intercontinental Mining & Resources Limited and Hanover Direct, Inc, successor-in-interest to The Horn & Hardart Company. The undersigned's Warrant Certificate is attached hereto. Please issue a certificate or certificates for such Common Stock in the name of: Name _______________________________________ (Please Print Name, Address and Federal Tax ID Number) Address ____________________________________ ____________________________________________ ____________________________________________ Federal Tax ID Number ______________________ Signature __________________________________ NOTE: The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form below. 5 Calculation of Cashless Exercise Current Market Price $___________ = A Exercise Price for Warrant Shares, as adjusted $___________ = B A-B = $____________________ Number of Warrants to be exchanged, as adjusted ___________ = C Number of Warrant Shares = (_______________ /____________) X ____________ (insert A-B) (insert A) (insert C) EX-10.6 3 AMENDMENT NO.4:AMENDED AND RESTATED PURCHASE AGMT. 1 EXHIBIT 10.6 AMENDMENT NO. 4 TO AMENDED AND RESTATED ACCOUNT PURCHASE AGREEMENT AMENDMENT NO. 4, made and entered into as of June 28, 1996, by and among HANOVER DIRECT, INC., a Delaware corporation and the successor-in-interest to The Hanover Companies ("HDI"); HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation formerly known as Hanover Direct, Inc. and Hanover Direct Fulfillment, Inc. ("HDPI"); BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"); GUMP'S CATALOG, INC., a Delaware corporation formerly known as GSF Acquisition Corp. ("Gump's Corp."); GUMP'S HOLDINGS, INC., a Delaware corporation ("Gump's Holdings"); GUMP'S BY MAIL, INC., a Delaware corporation ("Gump's By Mail"); HANOVER DIRECT VIRGINIA, INC., a Delaware corporation ("Hanover Virginia"); and TWEEDS, INC., a Delaware corporation ("Tweeds") ("HDI, HDPI, Brawn, GCI, Gump's Corp, Gump's Holdings, Gump's by Mail, Hanover Virginia and Tweeds being hereinafter collectively and individually referred to as "Hanover") and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), a New York corporation. W I T N E S S E T H: WHEREAS, HDI, HDPI, Brawn, GCI, Gump's Corp., Gump's Holdings and GE Capital are parties to an Amended and Restated Account Purchase Agreement dated as of April 25, 1994, as amended by an Amended No. 1 to Amended and Restated Purchase Agreement dated as of November 2, 1994, and by a Second Amendment to Account Purchase Agreement dated as of June 1, 1995, and by a Waiver and Amendment No. 3 to Amended and Restated Purchase Agreement dated as of November 14, 1995 (collectively, the "Purchase Agreement"); WHEREAS, it is the mutual desire of Hanover and GE Capital that the Purchase Agreement be amended in accordance with the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions hereinafter set forth, the parties hereto hereby agree as follows: 1. Capitalized terms used herein which are not otherwise defined shall have the same meaning as in the Purchase Agreement. 2. Gump's By Mail, Hanover VirginIa, and Tweeds shall be made parties to and shall be bound by the terms of the Purchase Agreement. 3. All references to "Gump's By Mail" throughout the Purchase Agreement shall refer to the company now known as Gump's 2 by Mail, Inc., and shall not refer to the company now known as Gump's Catalog, Inc. 4. All references to "Hanover" throughout the Purchase Agreement shall refer to HDI, HDPI, Brawn, GCI, Gump's Corp., Gump's Holdings, Gump's By Mail, Hanover Virginia and Tweeds, collectively and individually. 5. All references to "Gump's" throughout the Purchase Agreement shall refer to GCI, Gump's Corp., Gump's Holdings, and Gump's By Mail, collectively and individually. 6. All references to "GSF" throughout the Purchase Agreement shall refer to Gump's Corp. 7. Section 2.1(c)(2) of the Purchase Agreement shall be deleted and replaced with the following language: (2) from any of Gump's By Mail, Gump's Corp., Gump's Holdings or GCI if any such party no longer is under the control of Hanover. 8. In Section 7.1 of the Purchase Agreement, the language at the beginning of the first sentence reading "HDI, HDPI and Brawn" shall be deleted and replaced with the following language: HDI, HDPI, Brawn, GCI, Gump's Corp., Gump's Holdings, Gump's By Mail, Hanover Virginia and Tweeds. 9. The first sentence of Section 8.20 of the Purchase Agreement shall be deleted and replaced as follows: The Corporate structure in connection with Hanover is as follows: (a) Brawn, Gump's Holdings; HDPI, Hanover Virginia, and Tweeds are wholly-owned subsidiaries of HDI, (b) International Mail is a tradename and catalog asset owned by Brawn, and (c) Gump's By Mail, Gump's Corp. and GCI are wholly-owned subsidiaries of Gump's Holdings. 10. Each party shall pay its own out-of-pocket legal expenses in connection with the execution and delivery of this Amendment and the closing of the transactions relating thereto. 11. Except as specifically provided herein, the terms and conditions of the Purchase Agreement shall continue in full force and effect and shall be fully binding on the parties hereto. Upon execution of this Agreement, each reference in the Purchase Agreement to "this Purchase Agreement," "hereunder," "hereof," or words of like import, shall mean and be a reference to the Purchase Agreement as amended hereby. In the event of any conflict between the terms of the Purchase Agreement and the -2- 3 terms of this Amendment, the terms of this Amendment shall prevail. 12. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart. IN WITNESS WHEREOF, this Amendment has been duly executed as of the date and year first above written. GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ J. Alex Aguilar --------------------------- Name: J. Alex Aguilar --------------------- Title: Program Manager -------------------- HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien --------------------------- Name: Edward J. O'Brien ---------------------- Title: Senior Vice President --------------------- HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien --------------------------- Name: Edward J. O'Brien ---------------------- Title: Vice President --------------------- BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien --------------------------- Name: Edward J. O'Brien ---------------------- Title: Vice President --------------------- GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien --------------------------- Name: Edward J. O'Brien ---------------------- Title: Vice President --------------------- -3- 4 GUMP'S CORP. By: /s/ Edward J. O'Brien ____________________________ Name: Edward J. O'Brien _______________________ Title: Vice President ______________________ GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Name: Edward J. O'Brien _______________________ Title: Vice President ______________________ GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien ____________________________ Name: Edward J. O'Brien _______________________ Title: Vice President ______________________ -4- EX-10.9 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.9 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of August 23, 1996 (this "Agreement"), by and between HANOVER DIRECT, INC., a Delaware corporation (the "Company"), having an address at 1500 Harbor Boulevard, Weehawken, New Jersey 07087, and RAKESH K. KAUL (the "Executive"), President and Chief Executive Officer of the Company, having an address at 7000 Boulevard East, Tower 1, Apartment 32D, Guttenberg, N.J. 07093. WHEREAS, the Company is concurrently entering into an Executive Employment Agreement with the Executive that, among other things, requires the Company to (i) sell certain shares of Common Stock to the Executive and (ii) grant the Executive certain options to purchase shares of Common Stock. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the parties hereby agree as follows: 1. Registration. (a) Registration Right. From and after the date hereof, on one occasion, if the Company shall receive written notice from the Executive (hereinafter referred to as a "Notice") which: (i) requests that the Company take action to effect any registration with respect to any shares of Common Stock now owned or hereafter acquired by the Executive, pursuant to an option (granted by the Company or NAR Group Limited ("NAR")) or otherwise (the "Shares"); and (ii) specifies the number of proposed Shares intended to be offered and sold for the account of the Executive, and describes the proposed nature or method of the offer and sale of such Shares; then, subject to the conditions, qualifications and limitations set forth in this Registration Rights Agreement, the Company shall cause to be prepared and filed, and use its best efforts to cause to become effective under the Securities Act of 1933, as amended (the "1933 Act"), and to be maintained in effect for a period of not less than 180 days, a Registration Statement (including a related prospectus) in such applicable form under the 1933 Act (a "Registration Statement") as the Company, in its sole discretion, determines to be appropriate, covering the public offer and sale of the number of Shares specified in the Notice. Notwithstanding anything to the contrary herein, the foregoing rights shall not apply to any Shares at any time two years or more after 2 the date of the termination of the Executive's employment, for any reason whatsoever (the "Expiration Date"). (b) Registration Steps. Whenever required to use its best efforts to effect the registration of Shares, the Company shall at its expense, as expeditiously as reasonably possible: (i) prepare and file with the Securities and Exchange Commission (the "SEC") a Registration Statement and such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such Registration Statement and give the Executive and any underwriter participating in any disposition pursuant to a Registration Statement reasonable opportunities to review the same before it becomes effective; (ii) furnish to the Executive such numbers of copies of a prospectus, including a preliminary prospectus and all amendments and supplements thereto, in conformity with the requirements of the 1933 Act, and such other documents as he may reasonably request in order to facilitate the disposition of Shares owned by him; (iii) with respect to a Registration Statement to be filed pursuant to Section 1 only, use its best efforts to register or qualify the securities covered by such Registration Statement under the securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Executive for the distribution of the securities covered by the Registration Statement, provided that the Company shall not be required in connection therewith or as a condition thereof to qualify to do business in any such states or jurisdictions or take any other action which in the opinion of its counsel may subject it to taxation in such jurisdiction, it being understood that in connection with Registration Statements filed pursuant to Section 5, the Company's obligation is solely to include the Shares in such blue sky filings as the Company is otherwise making; (iv) notify the Executive, promptly after it receives notice thereof, of the time when such Registration Statement has become effective or an amendment or supplement to any prospectus forming a part of such Registration Statement has been filed; -2- 3 (v) notify the Executive, at any time when a prospectus is required to be delivered under the 1933 Act, of an event causing the prospectus to contain an untrue statement of a material fact or to omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the Shares under such prospectus, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (vi) cause the Shares to be listed on each securities exchange on which similar securities issued by the Company are then listed, provided that the applicable listing requirements are satisfied or could be satisfied by the Company's reasonable efforts; (vii) advise the Executive of the issuance of any stop order by the SEC suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose, and promptly use reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal; or (viii) make available for inspection by the Executive, any underwriter participating in any disposition pursuant to a Registration Statement, and any attorney, accountant or other agent retained by the Executive or such underwriter (collectively, the "Inspectors"), upon reasonable notice and during normal business hours, all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's and its subsidiaries, officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with the registration. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or omission in the Registration Statement, or (ii) the release of such records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. The Executive agrees that he will, upon learning that disclosure of such Records is -3- 4 sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. 2. Conditions on Registration Right. The provisions of Section 1 of this Registration Rights Agreement shall be subject to the following additional conditions, qualifications and limitations: (a) Financial Statement Requirements. The Company shall not be obligated to file a Registration Statement which under the Act would be required to contain audited financial statements other than the Company's fiscal year-end financial statements for its three full fiscal years (or such other number of fiscal years as may then be ordinarily required under the SEC regulations for Registration Statements on Form S-1 or its equivalent) immediately preceding the date of such filing together with any schedules with respect to such financial statements as may be required to be included in the Registration Statement. (b) Year End Filing. Subject to subsection (2)(c) hereof, the Company shall file a Registration Statement pursuant to Section 1 hereof within 120 days following its receipt of a Notice, provided, that if such 120 day period would otherwise expire within 60 days prior to the end or within 120 days after the beginning of any fiscal year, then the Company may, at its option, defer such filing to the closest subsequent date which is not less than 120 days after the beginning of a fiscal year. (c) Conflicting Company Activity. If prior to the filing or effectiveness of a Registration Statement filed by the Company pursuant to Section 1 hereof: (i) at the time of receiving the Notice, the Company shall have become a party to an agreement or filed materials with the SEC contemplating a material business acquisition by the Company, and, if in the good faith judgment of the Company it is impracticable for the Company to file and have become effective a Registration Statement prior to the consummation of the acquisition and, if such proposed acquisition were consummated, the Company would be required to include in such Registration Statement financial statements and/or other information concerning the business of any other party to such proposed acquisition, then the Company shall not be deemed to have breached its agreement to file such -4- 5 Registration Statement and to use its best efforts to cause such Registration Statement to become effective if it causes such Registration Statement to be filed (or if such Registration Statement has been filed, the use of its best efforts to cause such Registration Statement to become effective) within 180 days from the date on which the Company was required to file a Registration Statement or recommence the use of its best efforts to cause such Registration Statement to become effective, but in any event as soon as practicable; or (ii) at the time of receiving the Notice the Company shall have become party to an agreement contemplating a merger or consolidation of the Company into or with, or a sale or transfer of all or substantially all of the business and assets of the Company to, any other corporation or entity, and if in the good faith judgment of the Company it is impracticable for the Company to file and have become effective a Registration Statement prior to the consummation of the merger or consolidation, then the Company shall not be deemed to have breached its agreement to file such Registration Statement and to use its best efforts to cause such Registration Statement to become effective if it causes the filing of such Registration Statement (or, if filed, the effective date of such Registration Statement) to be deferred until the transaction contemplated by such agreement or letter of intent becomes effective (in which case the Company shall have no obligation to file or cause such Registration Statement to become effective) or is abandoned (in which case the Company shall use its best efforts to make such filing, or to recommence the use of its best efforts to cause such filing to become effective, as promptly as practicable after the abandonment thereof and in any event not more than 60 days after such abandonment); or (iii) the Company shall have determined in good faith based on written advice of counsel that such Registration Statement is required to contain information with respect to the Company or its business and plans which has not been publicly disclosed, and the disclosure of which, in the Company's good faith judgment, would not be in the best interest of the Company, then the Company shall not be deemed to have breached its agreement to file and to use its best efforts to cause such Registration Statement to become effective if it causes the filing of such Registration Statement to be deferred (or, if such Registration Statement has been filed, ceases its efforts to cause such Registration Statement to become effective) for a period of -5- 6 not more than 45 days from the date on which the Company was required to file a Registration Statement or recommence the use of its best efforts to cause such Registration Statement to become effective pursuant to this Agreement, but in any event as soon as practicable; it being understood and agreed that, the Company will promptly give written notice of such deferral, specifying the basis therefor and the anticipated duration thereof to the Executive; provided, however, that any non-public underlying information constituting the basis for a deferral hereunder need not be specified. The occurrence of any of the foregoing events shall not relieve the Company from its obligations pursuant to Section 1. (d) Sale Permitted Without Registration. The Company shall have no obligation to effect registration under Section 1 if all of the Executive's Shares requested to be registered shall be in the unqualified written opinion of counsel to the Company, which may be relied upon by the Executive, eligible to be sold on a current basis to the public without registration under they Act and without restriction as to subsequent trading. (e) Minimum Share Requirement. The Company shall have no obligation to effect registration under Section 1 if the Executive requests that less than 500,000 Shares be registered. 3. Registration Exclusively for the Executive. The Company shall not, without the written consent of the Executive, include any shares for sale for its own account or for the account of others in any Registration Statement filed pursuant to Section 1. 4. Prospectus Requirements. The Company shall be obligated to cause any effective prospectus included in the Registration Statement filed by the Company pursuant to Section 1 to meet the requirements of Section 10 of the 1933 Act until the expiration of a period of 180 days from the date on which the Executive was first able to sell Shares pursuant to such Registration Statement; provided, however, that if as a result of deferrals of the filing and/or the effective date of such Registration Statement occurring pursuant to subsection (2)(b) or (c), the aggregate period for which the Executive was able to offer and sell his Shares pursuant to such Registration Statement would be reduced to less than 180 days, then the Company shall take such action as may be necessary to enable the Executive to continue such offer and sale for an additional period or periods sufficient to produce any aggregate offering period of 180 days unless the expiration date should have occurred within such 180 day period. -6- 7 5. Piggyback Registration Rights. (a) The Company agrees with the Executive that if the Company proposes at any time to file with the SEC a registration statement under the 1933 Act on Form S-1, S-2 or S-3 or other comparable form relating to the sale of Common Stock by the Company or by NAR or any affiliate thereof (other than through the distribution of rights to purchase Common Stock to its stockholders generally) (a "Company Registration Statement"), then the Company shall give written notice to the Executive at least thirty (30) days prior to the filing of such Company Registration Statement of its intention to do so. (b) If the Executive delivers a written notice to the Company, within 15 days after delivery of the foregoing notice, of his desire to have any of the Shares included in a Company Registration Statement, such Shares shall be included in any Company Registration Statement so filed and shall not constitute an occasion on which the Executive requests the Company to take action to effect any registration with respect to any Shares of Common Stock now owned or hereafter acquired by the Executive, pursuant to an option or otherwise, as provided by Section 1 hereof, but subject to the other provisions of this Registration Rights Agreement. (c) If an underwriter with respect to a Company Registration Statement (the "Underwriter") advises the Company that the number of shares proposed to be sold by the Company and the Executive is greater than the number of shares of Common Stock which the underwriter believes feasible to sell at that time, at the price and upon the terms approved by the Company, then the number of shares of Common Stock which the Underwriter in its sole discretion believes may be sold shall first be allocated to the Company and the remaining number of such shares of Common Stock shall then be allocated on a pro rata basis to all other holders of Common Stock being registered, including the Executive. (d) The Company shall not be obligated to include in any Registration Statement pursuant to this Section 5 any Shares which, at the time of filing such Registration Statement, have been covered by or included in any other Registration Statement theretofore filed by the Company under the 1933 Act and declared effective by the SEC. (e) At the request of the Underwriter, and as a condition to inclusion in the Company Registration Statement of any Shares owned by the Executive, the Executive shall agree in writing not to offer or -7- 8 sell any Shares not included in a Company Registration Statement filed pursuant to this Section 5 for a period specified by the Underwriter, provided that such period shall not exceed 120 days from the effective date of such Company Registration Statement and that every other selling shareholder subject to a provision identical or substantially similar to this paragraph (e) of this Section 5 is similarly restricted. (f) Notwithstanding the inclusion of any Shares owned by the Executive in any Company Registration Statement filed pursuant to this Section 5, the Company shall have no obligation to cause or permit such Company Registration Statement to become effective under the 1933 Act at any time, and in its sole discretion may withdraw such Company Registration Statement at any time prior to the effectiveness thereof for any reason whatsoever. The Company agrees in the event of any such withdrawal of any Company Registration Statement to give prompt notice of such withdrawal to the Executive. In the event of such withdrawal the Executive will not be deemed to have exercised his right to have Shares included in a Company Registration Statement so withdrawn. (g) The Company shall be obligated to cause any effective prospectus included in the Company Registration Statement to meet the requirements of Section 10 of the Act for a period of 180 days from the date on which the Executive was first able to sell Shares pursuant to such Company Registration Statement provided, however, that if, as a result of interruptions in the offer and sale of Shares covered thereby, the aggregate period for which the Executive was able to offer and sell his Shares pursuant to such Company Registration Statement would be reduced to less than 180 days, then the Company shall take such action as may be necessary to enable the Executive to continue such offer and sale for an additional period or periods sufficient to produce an aggregate offering period of 180 days. (h) The Company shall not, so long as this Agreement is in effect, without the prior written consent of the Executive, grant registration rights to any other person more favorable than the registration rights granted to the Executive hereunder. 6. Selling Expenses. (a) Except as otherwise set forth in (b) below or as required by the SEC or any other federal or state regulatory authority or by any self regulatory agency, the costs and expenses incurred in connection with the inclusion of the Executive's Shares in a registration statement shall be borne by the Company with respect to (i) any Registration -8- 9 Statement filed under Section 1 and (ii) all Company Registration Statements filed under Section 5 which included Shares of the Executive, including, without limitation, all costs and expenses arising from or related to the preparation and filing of such registration statements, the prosecution of such filings to effectiveness and the maintenance of such registration statements in effect for the period determined pursuant to Sections 4 or 5 hereof, as the case may be. (b) Notwithstanding anything to the contrary set forth in subsection (a), the Executive shall bear the following costs and expenses incurred in connection with all registration statements filed pursuant to this Agreement in which Shares owned by him are included: (i) The fees and disbursements of any separate counsel retained by the Executive; (ii) Any underwriting discounts, commissions and expenses relating to Shares sold by the Executive; and (iii) Any taxes payable with respect to the transfer by the Executive. (c) Notwithstanding anything to the contrary set forth herein, the Company shall have the obligation to bear any state securities law ("blue sky") filing and registration fees relating to such Shares with respect to a Registration Statement filed under Section l(a) only in up to twenty (20) states designated by the Executive and shall have no obligation to bear such fees in connection with the inclusion of Shares in a Company Registration Statement under Section 5 hereof in any states where the Company was not otherwise intending to register or file with respect to shares covered by the Company Registration Statement. 7. Reports Under Securities Exchange Act of 1934. With a view to making available to the Executive the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit the Executive to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3 (or any successor form to Form S-3 regardless of its designation), the Company agrees to use all reasonable efforts to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times; -9- 10 (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the Securities Exchange Act of 1934, as amended (the "1934 Act"); and (c) furnish to the Executive, so long as the Executive owns any Shares, forthwith upon request, whenever applicable (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the 1933 Act, and the 1934 Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing the Executive of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 8. Indemnification. In the event any of the shares are included in any registration statement: (a) the Company shall indemnify and hold harmless the Executive or any underwriter (within the meaning of the 1933 Act) for the Company or the Executive, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act, or the 1934 Act, state securities laws, other federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) (i) arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or any documents prepared or furnished by the Company incident thereto, or (ii) arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) arise out of or are based upon any violation by the Company of any rule or regulation promulgated under the 1933 Act, the 1934 Act, or other federal or state law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration. The Company shall reimburse the Executive or such underwriter for any reasonable and actual legal or other expenses, as incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. Notwithstanding the foregoing, the Company shall not be liable in any such case for any loss, claim, damage, liability or action to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in -10- 11 connection with such registration statement, preliminary prospectus, final prospectus or amendments or supplements thereto or documents prepared or furnished by the Company incident thereto in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Executive or such underwriter. (b) the Executive shall indemnify and hold harmless the Company, each of its directors, each of its officers who have signed such registration statement, each person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter for the Company (within the meaning of the 1933 Act) and each other holder and its respective officers, directors, partners and controlling persons to the same extent as the foregoing indemnity from the Company to the Executive, in each case to the same extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading was made in such registration statement, preliminary prospectus, final prospectus or amendments or supplements thereto or document prepared or furnished by the Company incident thereto in reliance upon and in conformity with written information furnished by the Executive expressly for use in connection with such registration. Notwithstanding the foregoing, obligations of the Executive shall be limited to an amount equal to the proceeds to the Executive of Shares sold pursuant to the registration statement to which the loss, claim, damage, liability or action relates. (c) promptly after receipt by an indemnified party under this section of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party unless such liability is the proximate result of such failure. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to appoint counsel reasonably satisfactory to such indemnified party to represent the indemnified party in such action; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded based on the written opinion of counsel addressed to the indemnifying party that there may be a conflict of interest between it and/or other indemnified parties, on the one hand, and the -11- 12 indemnifying party, on the other, the indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to appoint counsel to defend such action and approval by the indemnified party of such counsel, the indemnifying party will not be liable to such indemnified party under this section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel selected by the Executive), or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (a) or (b) of this Section 8 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Company on grounds of policy or otherwise, the Company and the Executive shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which the Company and the Executive may be subject in such proportions as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, obligations of the Executive shall be limited to an amount equal to the proceeds to the Executive of Shares sold pursuant to the registration statement to which the loss, claim, damage, liability or action relates. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this paragraph (d), notify such party or parties from whom contribution may be sought, but the omission to so -12- 13 notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this paragraph (d). IN WITNESS WHEREOF, the undersigned have executed this Registration Rights Agreement as of the date first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien _________________________________ Name: Title: /s/ Rakesh K. Kaul ______________________________________ Rakesh K. Kaul -13- EX-10.19 5 AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.19 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of February __, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware Corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware Corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), and HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis and HDV, each individually referred to herein as an "Existing Borrower" and collectively, "Existing Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation ("Aegis Holding"), AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation ("CSHI"), D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation ("Hanover Catalog"), HANOVER DIRECT NEW JERSEY, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation ("Hanover Finance"), HANOVER HOLDINGS, INC., a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation ("Scandia"), SKANDIA DOWNSALES, INC., a Wisconsin corporation, TW ACQUISITIONS INC., a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, and YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation (each individually an "Existing Guarantor" and collectively, "Existing Guarantors"), THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; as hereinafter further defined) and AUSTAD HOLDINGS, INC., a Delaware corporation ("Austad Holdings"; as hereinafter further defined). Each Existing Borrower, together with Austad, shall hereinafter be referred to individually as a "Borrower" and collectively as "Borrowers", and each Existing Guarantor, together with Austad Holdings, shall hereinafter be referred to individually as a "Guarantor" and collectively as "Guarantors." 2 W I T N E S S E T H: WHEREAS, Existing Borrowers, Existing Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995 (the "Loan Agreement"), pursuant to which Lender has made loans and advances to Existing Borrowers; and WHEREAS, Existing Borrowers, Existing Guarantors and Lender contemplated, pursuant to Section 2.11 of the Loan Agreement, that Austad may become a Revolving Loan Borrower under the Loan Agreement and that Austad Holdings may become a Guarantor under the Loan Agreement; and WHEREAS, Hanover, Austad, Austad Holdings, David B. Austad, individually and as custodian for certain members of his immediate family, and Denise Austad (the "David Austad Group", as hereinafter further defined) have agreed, among other things, to a plan of corporate separation and restructure of the mail order and retail businesses of Austad; and WHEREAS, to provide working capital financing for the mail order business retained by Austad following such corporate separation and reorganization, Austad has requested that it become a Revolving Loan Borrower under the Loan Agreement and Austad Holdings has requested that it become a Guarantor under the Loan Agreement; and WHEREAS, Existing Borrowers and Existing Guarantors have also requested that Austad become a Revolving Loan Borrower pursuant to the terms and conditions of the Loan Agreement, as amended hereby, and that Austad Holdings become a Guarantor pursuant to the terms and conditions of the Loan Agreement, as amended hereby; and WHEREAS, the parties to the Loan Agreement desire to enter into a this Amendment to the Loan Agreement to amend and modify certain provisions thereof in order to: (a) include Austad as a Revolving Loan Borrower and Austad Holdings as a Guarantor thereunder, subject to the provisions set forth herein, (b) provide that Lender shall have a security interest in and lien upon all of the assets and properties of each of Austad and Austad Holdings to secure their Obligations to Lender, and (c) make certain other amendments to the Loan Agreement; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: -2- 3 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the respective meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, each of the following definitions: (i) "AGS" shall mean AGS, Inc., a South Dakota corporation, and its successors and assigns. (ii) "Austad Catalog Division" shall mean all of the assets and properties of Austad related to or used in connection with the sale of golf equipment, golf supplies, golf apparel and related goods and services through its "Austad's" mail order catalog. (iii) "Austad Eligible Inventory" shall mean all Inventory of Austad in the merchandise categories of golf equipment, golf supplies, golf apparel and related finished goods offered for sale by Austad in its "Austad's" catalog, or such other catalogs created or acquired by Austad covering substantially similar merchandise which Austad has requested Lender to include in this Inventory category. (iv) "Austad Escrow Agreement" shall mean the Escrow Agreement, dated February 16, 1996, by and among The First National Bank in Sioux Falls, Austad and David Austad in his individual capacity and on behalf of the other members of the David Austad Group, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (v) "Austad Holdings" shall mean Austad Holdings, a Delaware corporation, and its successors and assigns. (vi) "Austad Reorganization Agreements" shall mean, collectively, the Agreement and Plan of Corporate Separation and Reorganization, dated as of February 16, 1996, by and among Hanover, Austad Holdings, Austad and the David Austad Group, the Escrow Agreement and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered by any Person in connection therewith or related thereto, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (vii) "Austad Retail Division" shall mean all assets and properties of Austad related to or used in connection with the retail sale of golf equipment, golf supplies, apparel and related goods and services through one retail store located in Sioux Falls, South Dakota, two retail stores located in Blaine and Edina, Minnesota and one retail store located in -3- 4 Oak Brook, Illinois, but only to the extent such assets and properties are transferred to AGS pursuant to the Austad Reorganization Agreements, and, in the case of Inventory of Austad, limited to only such Inventory that is located on the premises of the foregoing retail stores and such Inventory that is located on the premises of the Sioux Falls, South Dakota fulfillment center of Austad that was specifically purchased for the retail division of Austad. (viii) "Austad Subordinated Notes" shall mean, collectively, (A) the Promissory Note, dated May 25, 1995, by Austad payable to Hanover Finance in the original principal amount of $400,000, the payment of which is guaranteed by Austad Holdings, and (B) the Subordinated Promissory Note, dated May 25, 1995, by Austad payable to Hanover Finance in the original principal amount of $2,200,000, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (ix) "David Austad" shall mean David B. Austad, and his heirs, executors, administrators, successors and assigns. (x) "David Austad Group" shall mean, individually and collectively, (A) David B. Austad, individually and as custodian for certain members of his immediate family under the South Dakota Uniform Transfer to Minors Act, (B) Denise Austad, individually and (C) each of their respective heirs, executors, administrators, successors and assigns. (xi) "FNBO" shall mean First National Bank of Omaha, a national banking association, successor in interest to First Bank of South Dakota, N.A., and its successors and assigns. (xii) "HDV" shall mean Hanover Direct Virginia Inc., a Delaware corporation, and its successors and assigns. (b) Amendments of Certain Definitions. (i) Section 1.117 of the Loan Agreement is hereby amended to include Austad within the definition of "Revolving Loan Borrowers" as set forth therein. (ii) Section 1.100 of the Loan Agreement is hereby amended such that neither Austad nor Austad Holdings shall be considered Non-Guarantor Subsidiaries. (iii) Austad and Austad Holdings shall each be deemed included in the definition of "Guarantors" set forth in Section 1.51 of the Loan Agreement, and the parties hereto agree -4- 5 that Austad and Austad Holdings are each hereby included as a Guarantor under the Loan Agreement. (iv) Section 1.34 of the Loan Agreement is hereby amended to include Austad Eligible Inventory within the definition of "Eligible Inventory" as set forth therein. (v) Section 1.13 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "1.13 "Austad" shall mean The Austad Company, a South Dakota corporation, and its successors and assigns." (c) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein which are defined in the Loan Agreement shall have the meaning given to such terms in the Loan Agreement. 2. Assumption of Obligations; Amendments to Guarantees and Financing Agreements. (a) Austad hereby expressly (i) assumes and agrees to be directly liable to Lender, jointly and severally with the other Borrowers, for all Obligations under, contained in, or arising out of the Loan Agreement and the other Financing Agreements applicable to all Borrowers and as applied to Austad as a Borrower and Guarantor, (ii) agrees to perform, comply with and be bound by all terms, conditions and covenants of the Loan Agreement and the other Financing Agreements applicable to all Borrowers and as applied to Austad as a Borrower and Guarantor, with the same force and effect as if Austad had originally executed and been an original Borrower and Guarantor party signatory to the Loan Agreement and the other Financing Agreements, and (iii) agrees that Lender shall have all rights, remedies and interests, including security interests in and to the Collateral granted pursuant to Section 3(a) hereof, the Loan Agreement and the other Financing Agreements, with respect to Austad and its properties and assets with the same force and effect as Lender has with respect to the other Borrowers and their assets and properties as if Austad had originally executed and had been an original Borrower and Guarantor party signatory to the Loan Agreement and the other Financing Agreements. (b) Austad Holdings hereby expressly (i) assumes and agrees to be directly liable for all Obligations under, contained in, or arising out of the Loan Agreement, the General Security Agreement, dated November 14, 1995, by the Existing Guarantors, other than Hanover and Borrowers, in favor of Lender (the "Subsidiary General Security Agreement") and the other Financing Agreements applicable to all Guarantors and as applied to Austad Holdings as a Guarantor, (ii) agrees to perform, comply with and be bound by all terms, conditions and covenants of the -5- 6 Loan Agreement, the Subsidiary General Security Agreement and the other Financing Agreements applicable to all Guarantors and as applied to Austad Holdings as a Guarantor with the same force and effect as if Austad Holdings had originally executed and been an original Guarantor or Debtor, as the case may be, party signatory to the Loan Agreement, the Subsidiary General Security Agreement and the other Financing Agreements, and (iii) agrees that Lender shall have all rights, remedies and interests, including security interests in the Collateral granted pursuant to Section 3(b) hereof, the Loan Agreement, the Subsidiary General Security Agreement, and the other Financing Agreements, with respect to Austad Holdings and its properties and assets with the same force and effect as if Austad Holdings had originally executed and had been an original Guarantor or Debtor, as the case may be, party signatory to the Loan Agreement, the Subsidiary General Security Agreement and the other Financing Agreements. (c) Each of the Existing Borrowers, in their capacities as Guarantors, hereby agrees that each of their respective Guarantee and Waivers, dated November 14, 1995 (collectively, the "Borrower Guarantees") is hereby amended to include Austad as an additional Guarantor party signatory thereto. Austad hereby expressly (i) assumes and agrees to be directly liable to Lender, jointly and severally with the other Borrowers signatories thereto and the Guarantors, for all Obligations (as defined in the Borrower Guarantees), (ii) agrees to perform, comply with and be bound by all terms, conditions and covenants of the Borrower Guarantees with the same force and effect as if Austad had originally executed and been an original party signatory to each of the Borrower Guarantees, and (iii) agrees that Lender shall have all rights, remedies and interests with respect to Austad and its property under the Borrower Guarantees with the same force and effect as if Austad had originally executed and been an original party signatory to each of the Borrower Guarantees. (d) Each of the Existing Guarantors which is a party to the Guarantee and Waiver, dated November 14, 1995, executed by the Existing Guarantors, other than Hanover and the Existing Borrowers, in favor of Lender (the "Subsidiary Guarantee"), hereby agrees that such Guarantee is hereby amended to include Austad Holdings as an additional Guarantor party signatory thereto. Austad Holdings hereby expressly (i) assumes and agrees to be directly liable to Lender, jointly and severally with the other Guarantors signatories thereto and the Borrowers, for all Obligations (as defined in the Subsidiary Guarantee), (ii) agrees to perform, comply with and be bound by all terms, conditions and covenants of the Subsidiary Guarantee with the same force and effect as if Austad Holdings had originally executed and been an original party signatory to the Subsidiary Guarantee, and (iii) agrees that Lender shall have all rights, remedies and interests with respect to Austad Holdings and its property with the same force and effect as if Austad Holdings had -6- 7 originally executed and been an original party signatory to the Subsidiary Guarantee. (e) Each Guarantor, including without limitation, Austad, in its capacity as Guarantor, and Austad Holdings, hereby expressly and specifically ratifies, restates and confirms the terms and conditions of its respective Guarantees in favor of Lender and its liability for all of the Obligations (as defined in its Guarantees), and other obligations, liabilities, agreements and covenants thereunder. (f) Each Borrower, including, without limitation, Austad, and each Guarantor, including, without limitation, Austad Holdings, hereby agrees that all references to Borrower or Borrowers contained in any of the Financing Agreements are hereby amended to include Austad as an additional Borrower. Each Borrower, including, without limitation, Austad, and each Guarantor, including, without limitation, Austad Holdings, hereby agrees that all references to Guarantor or Guarantors or Debtor or Debtors contained in any of the Financing Agreements are hereby amended to include Austad Holdings as an additional Guarantor or Debtor, as the case may be. 3. Collateral. (a) Austad Collateral. Without limiting the provisions of Section 2(a) hereof, the Loan agreement and the other Financing Agreements, as collateral security for the prompt performance, payment and performance when due of all of the Obligations of Austad to Lender, Austad hereby grants to Lender, a continuing security interest in, and liens upon, and rights of setoff against, and Austad hereby pledges and assigns to Lender, all now owned and hereafter acquired and arising assets and properties of Austad, all of which shall be included in the definition of Collateral as set forth in the Loan Agreement (which definition is hereby amended accordingly), including, without limitation, the following: (i) all of the following, whether now owned or hereafter acquired or arising: (A) all Accounts, including, without limitation, all MasterCard/VISA Receivables and all other Third Party Credit Card Receivables, and all monies, credit balances and other amounts due from or through or held by Third Party Credit Card Issuers, or other parties to the Third Party Credit Card Agreements, all monies paid by or through the Private Credit Card Purchaser, all rentals or license fees receivable in respect of sale, lease, or license of Customer Lists, all monies, securities and other property and the proceeds thereof, now or hereafter held or received by, or in transit to, Lender from or for Austad, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Austad's deposits (general or special), balances, sums and credits with Lender at any time existing; (B) all right, title -7- 8 and interest, and all rights, remedies, security and liens, in, to and in respect of the Accounts and other Collateral, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guarantees or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligations of any Account Debtor, all credit and other insurance; (C) all right, title and interest in, to and in respect of all goods relating to, or which by sale have resulted in, Accounts, including, without limitation, all goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, any Account or other Collateral, including, without limitation, all returned, reclaimed or repossessed goods; (D) all deposit accounts; and (E) all other general intangibles of every kind and description, including, without limitation, (1) tradenames and trademarks, and the goodwill of the business symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) Federal, State and local tax and duty refund claims of all kinds, (6) catalogs and promotional materials, (7) all Customer Lists, and (8) all right, title and interest of Austad in and to Mail Order Joint Ventures, and other joint ventures, partnerships and other Persons; (ii) Inventory; (iii) Equipment; (iv) Real Property, other than the real property located at 4500 East 10th Street, Sioux Falls, South Dakota; (v) all present and future books, records, ledger cards, computer software (including all manuals, upgrades, modifications, enhancements and additions thereto), computer tapes, disks, other electronic data storage media, documentation of file and record formats and source code, documents, other property and general intangibles evidencing or relating to any of the above, any other Collateral or any Account Debtor, together with the file cabinets or containers in which the foregoing are stored; and (vi) all present and future products and proceeds of the foregoing, in any form whatsoever, including, without limitation, any insurance proceeds and any claims against third persons for loss or damage to or destruction of any or all of the foregoing. Notwithstanding the foregoing, the Collateral does not include any leasehold interests of Austad. (b) Austad Holdings Collateral. Without limiting the provisions of Section 2(b) hereof, the Loan Agreement, the -8- 9 Subsidiary General Security Agreement and the other Financing Agreements, as collateral security for the prompt payment and performance when due of all of the Obligations of Austad Holdings, Austad Holdings hereby grants to Lender, a continuing security interest in, and liens upon, and rights of setoff against, and Austad Holdings hereby pledges and assigns to Lender, all now owned and hereafter acquired and arising assets and properties of Austad Holdings, all of which shall be included in the definition of Collateral as set forth in the Subsidiary General Security Agreement (which definition is hereby amended accordingly), including, without limitation, the following: (i) all present and future: (A) accounts, credit card receivables (including credit card charge records and other evidences of credit card transactions), contract rights, general intangibles, chattel paper, documents and instruments (collectively, "Accounts"), including, without limitation, all obligations for the payment of money arising out of the sale, lease or other disposition of goods or other property or rendition of services, all monies, all credit balances, reserve balances and other monies due from or held by factors or credit card issuers or servicing agents or financial intermediaries; (B) all monies, securities and other property and the proceeds thereof, now or hereafter held or received by, or in transit to, Lender or any participant from or for Austad Holdings, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Austad Holding's deposits (general or special), balances, sums and credits with Lender or any participant at any time existing; (C) all of Austad Holding's right, title and interest, and all of Austad Holding's rights, remedies, security and liens, in, to and in respect of the Accounts and other collateral, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any account debtor, credit and other insurance; (D) all of Austad Holding's right, title and interest in, to and in respect of all goods relating to, or which by sale have resulted in Accounts, including, without limitation, all goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, any Account or other collateral, including, without limitation, all returned, reclaimed or repossessed goods; (E) all deposit accounts; and (F) all other general intangibles of every kind and description, including, without limitation, (1) trade names and trademarks, and the goodwill of the business symbolized thereby, (2) patents, (3) copyrights, (4) licenses, (5) claims and other choses in action, (6) Federal, State, local and foreign tax refund claims of all kinds, (7) catalogs and promotional materials, customer and mailing lists, and (8) all right, title and interest in and to joint ventures and partnerships; -9- 10 (ii) all Inventory; (iii) all Equipment; (iv) all Real Property; (v) all present and future books, records, ledger cards, computer programs and other property and general intangibles evidencing or relating to any of the above, any other collateral or any account debtor, together with the file cabinets or containers in which the foregoing are stored; and (vi) all present and future products and proceeds of the foregoing, in any form, including, without limitation, any insurance proceeds and any claims against third persons for loss or damage to or destruction of any or all of the foregoing. Notwithstanding the foregoing, the Collateral does not include any leasehold interests of Austad Holdings. (c) Additional Collateral. Without limiting the foregoing, or the other grants of Collateral pursuant to the Loan Agreement or any of the other Financing Agreements, in order to induce Lender to extend loans, advances and other financial accommodations to Borrowers under the Loan Agreement, and as additional collateral for the payment and performance when due of all Obligations of Austad, Austad Holdings and Hanover Finance, as the case may be, (i) each of Austad and Austad Holdings by its execution below, hereby pledges and assigns to Lender and grants to Lender a security interest in, all of its now existing and hereafter arising (A) rights, remedies, claims for monies, indemnification claims and claims for damages or other relief pursuant to or in respect of the Austad Escrow Agreement and the other Austad Reorganization Agreements, (B) rights, remedies, claims for monies, indemnification claims and claims for damages or other relief under or in respect of the documents and instruments referred to in the Austad Escrow Agreement and the other Austad Reorganization Agreements, and (C) all proceeds, collections, recoveries and rights with respect to the foregoing and (ii) Hanover Finance by its signature below hereby pledges and assigns to Lender all of its right, title and interest in and to, and agrees to indorse to Lender, each of the Austad Subordinated Notes. Nothing set forth herein, and no act taken by Lender pursuant to the pledges, assignments and grants of security interests set forth herein shall constitute an assumption by Lender of any obligation or liability of Austad or Austad Holdings pursuant to or in connection with the Escrow Agreement and the other Austad Reorganization Agreements or otherwise, or of Hanover Finance pursuant to or in connection with the Austad Subordinated Notes or otherwise. -10- 11 4. Austad Inventory Advance Rate. Section 2.1(b) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(b) Revolving Inventory Loans. Subject to, and upon the terms and conditions contained herein and in the other Financing Agreements, Lender shall, from time to time, make Revolving Inventory Loans (i) to each Revolving Loan Borrower, other than Gump's and Austad's, at such Revolving Loan Borrower's request, of up to the lesser of (A) sixty percent (60%) of the Value of the Eligible Inventory of such Revolving Loan Borrower or (B) the Net OLV Percentage of the Value of such Eligible Inventory, and (ii) to Gump's, at its request, of up to the lesser of (A) sixty percent (60%) of the Value of Eligible Inventory of Gump's or (B) the Net GOB Percentage of the Value of Eligible Inventory of Gump's, and (iii) to Austad, at its request, of up to the lesser of (A) forty percent (40%) of the Value of Eligible Inventory of Austad or (B) the Net OLV Percentage of the Value of such Eligible Inventory, or, in each of clauses (b)(i), (b)(ii) or (b)(iii), such greater or lesser percentages thereof as Lender shall, in its sole discretion, determine from time to time (the "Inventory Loan Formulas"). Without limiting the foregoing, the sixty percent (60%) lending formula component referred to in clauses (b)(i)(A) and (b)(ii)(A) and the forty percent (40%) lending formula component referred to in clause (b)(iii)(A) may be adjusted downward by Lender based upon any adverse change, individually or in the aggregate, in the turnover of Eligible Inventory or deterioration in mix, nature or quality of Eligible Inventory in the respective categories of Eligible Inventory, and any such downward adjustment made for such reason(s) (or on the basis of the lending formula component set forth in clauses (b)(i)(B), (b)(ii)(B) or (b)(iii)(B) above) shall not be considered solely discretionary for purposes of the provision contained in the definition of Interest Rate and Section 2.7(c) hereof." 5. Inventory Sublimits. Section 2.2(j) of the Loan Agreement is hereby redesignated Section 2.2(k) and a new Section 2.2(j) of the Loan Agreement is added as follows: "(j) Subject to, and upon the terms and conditions contained herein, the aggregate principal amount of Revolving Loans and Letter of Credit Accommodations made available to Austad shall not exceed Three Million Dollars ($3,000,000) at any one time outstanding." -11- 12 6. Letter of Credit Accommodations. Without limiting the rights of Lender to establish a greater percentage in connection with Letter of Credit Accommodations established for the purchase of goods pursuant to Sections 2.3(b) and 2.3(d) of the Loan Agreement, Austad and the Existing Borrowers agree for purposes of clarity that the reference to forty percent (40%) set forth in Sections 2.3(b)(i)(A)(1) and 2.3(d)(i)(A) of the Loan Agreement shall apply only to Existing Borrowers and that it is hereby agreed that such percentage as applied to Austad shall be sixty percent (60%) in such Sections . 7. Guarantees. Section 4.2 of the Loan Agreement is hereby deleted in its entirety and replaced with the following, effective November 14, 1995: "4.2 Guarantees Concurrently herewith, in order to induce Lender to enter into this Agreement and the other Financing Agreements to be entered into on the date hereof, each Borrower shall execute and deliver to Lender the Guarantee by Borrowers, and Borrowers shall cause Guarantors to execute and deliver to Lender the Guarantees by the Guarantors, each in form and substance satisfactory to Lender, as provided therein (as all of such Guarantees, now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, individually a "Guarantee" and collectively the "Guarantees"). In its capacity as a party signatory to such Guarantees, each Borrower shall be considered a Guarantor hereunder." 8. Additional Amendments. (a) Section 2.11(c), (d) and (e) of the Loan Agreement are hereby redesignated Sections 2.11(a), (b) and (c), respectively. (b) The name of the signatory party identified on signature page 123 to the Loan Agreement as Skandia Down Sales, Inc. is hereby corrected to be Skandia Downsales, Inc. 9. Exhibits. (a) Exhibits A, B-1, B-4, C, D, F, G, H-1 and H-3, to the Loan Agreement are hereby amended to include, in addition and not in limitation, the information set forth on the First Supplements to each of such Exhibits attached hereto. (b) Exhibit A to the Subsidiary General Security Agreement is hereby amended to include, in addition and not in limitation, the information set forth on the First Supplement to Exhibit A attached hereto. -12- 13 10. Representations and Warranties. Borrowers represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a continuing condition of the making of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) As of the date hereof, Austad does not have a Deferred Billing Option Program. (b) This Amendment and each other agreement or instrument to be executed and delivered by each of Austad, Austad Holdings, the other Borrowers and/or the other Guarantors hereunder have been duly authorized, executed and delivered by all necessary action on the part of each of Austad, Austad Holdings, the other Borrowers and the other Guarantors which is a party hereto and thereto and, if necessary, their respective stockholders, and is in full force and effect as of the date hereof, as the case may be, and the agreements and obligations of each of Austad, Austad Holdings, the other Borrowers and/or the other Guarantors, as the case may be, contained herein and therein constitute legal, valid and binding obligations of each of Austad, Austad Holdings, the other Borrowers and/or the other Guarantors, as the case may be, enforceable against them in accordance with their terms. (c) Neither the execution and delivery of the Austad Reorganization Agreements, nor the consummation of the transactions contemplated by the Austad Reorganization Agreements, nor compliance with the provisions of the Austad Reorganization Agreements, shall result in the creation or imposition of any lien, claim, charge or encumbrance upon any assets of the Austad Catalog Division or any other Collateral, except in favor of Lender pursuant to this Amendment. (d) Neither the execution and delivery of the Austad Reorganization Agreements, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof, (i) has violated or shall violate any Bulk Sales Act, Bulk Transfer Act or Article 6 of the UCC, if applicable, or any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect or (ii) does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instrument to which Austad or Austad Holdings or any other Borrower or other Guarantor is a party or may be bound, or (iii) shall violate any provision of the Certificates of Incorporation or By-Laws of Austad, Austad Holdings, or any other Borrower or other Guarantor. -13- 14 (e) All of the outstanding shares of capital stock of each of Austad and Austad Holdings have been duly authorized, validly issued and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind. Hanover is the beneficial and direct owner of record of one hundred (100%) percent of the issued and outstanding capital stock of Austad Holdings. Austad Holdings is the beneficial and direct owner of record of one hundred (100%) percent of the issued and outstanding capital stock of Austad. After giving effect to the consummation of the Austad Reorganization Agreements, there is no debt outstanding that is convertible into capital stock of Austad or Austad Holdings, and there are no outstanding rights, options or warrants to acquire any capital stock or debt convertible into capital stock of Austad or Austad Holdings. (f) No action of, or filing with, or consent of any governmental or public body or authority, other than the filing of UCC financing statements, and no approval or consent of any other party, is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of this Amendment. (g) All of the representations and warranties set forth in the Loan Agreement and the other Financing Agreements, each as amended hereby, are true and correct in all material respects on and as of the date hereof as if made on the date hereof, except as affected by transactions expressly contemplated or permitted by this Amendment and except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (h) As of the date hereof, and after giving effect to the provisions of this Amendment, no Event of Default, and no condition or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, exists or has occurred and is continuing. (i) Austad Holdings is a Delaware corporation, duly organized and validly existing in good standing under the laws of the State of Delaware. Austad is a South Dakota corporation, duly organized and validly existing in good standing under the laws of the State of South Dakota. Each of Austad and Austad Holdings (i) is duly licensed or qualified to do business as a foreign corporation and is in good standing in each of the jurisdictions set forth in the First Supplement to Exhibit A to the Loan Agreement annexed hereto, which are the only jurisdictions wherein the character of the properties owned or licensed or the nature of the business of Austad and/or Austad Holdings, makes such licensing or qualification to do business necessary; and (ii) has all requisite power and authority to own, -14- 15 lease and operate its properties and to carry on its business as it is now being conducted and will be conducted in the future. (j) The assets and properties of Austad and Austad Holdings are owned by them, free and clear of all security interests, liens and encumbrances of any kind, nature or description, as of the date hereof, except those security interests granted pursuant hereto in favor of Lender and except for Liens (if any) permitted under Section 6.4 of the Loan Agreement or the other Financing Agreements. 11. Conditions Precedent. Concurrently with the execution hereof (except to the extent otherwise indicated below), and as a further condition to the effectiveness of this Amendment and the agreement of Lender to the modifications and amendments set forth in this Amendment: (a) Lender shall have received, in form and substance satisfactory to Lender, evidence that (i) the Austad Reorganization Agreements have been duly executed and delivered by and to the appropriate parties thereto and (ii) the transactions contemplated under the terms of the Austad Reorganization Agreements have been consummated prior to, or contemporaneously with, the execution of this Amendment, including, without limitation, the receipt by FNBO of the amount, to be paid by or on behalf of the David Austad Group and/or AGS, representing a portion of the outstanding obligations owed by Austad to FNBO under the financing arrangements between FNBO and Austad, referred to as the "Balance Due Amount" in the Austad Reorganization Agreements; (b) Lender shall have received, in form and substance satisfactory to Lender, all releases, terminations and such other documents as Lender may request to evidence and effectuate the termination by FNBO of its financing arrangements with Austad and Austad Holdings, and the termination and release by FNBO of any interest in and to any assets and properties of Austad and Austad Holdings, duly authorized, executed and delivered by FNBO, including, but not limited to (i) UCC-3 Termination Statements for all UCC-1 Financing Statements previously filed by FNBO for its predecessors, as secured party, and Austad or Austad Holdings, as debtor, and (ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by Austad or Austad Holdings in favor of FNBO, in form acceptable for recording in the appropriate governmental office; (c) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions of this Amendment and -15- 16 the other Financing Agreements, including, without limitation, a Mortgagee Waiver by Valley Bank as mortgagee of Austad's Sioux Falls, South Dakota distribution center real property; (d) Each of Austad, Austad Holdings, Borrowers and Guarantors shall have delivered to Lender, in form and substance satisfactory to Lender, each of the following agreements duly authorized, executed and delivered: (i) First Amendment to Trademark Collateral Assignment and Security Agreement, dated November 14, 1995, by and among Hanover, Hanover Catalog, Scandia, Aegis Holdings, CSHI and Lender, providing for the addition of Austad Holdings as a Debtor thereunder and the grant by Austad Holdings of a security interest in any trademarks, and any such documents, instruments or filings with respect thereto with the U.S. Patent and Trademark Office to protect such Collateral; (ii) five (5) Special Powers of Attorney (Trademark) by Austad Holdings in favor of Lender; (iii) amendments to the Third Party Credit Card Acknowledgments setting forth such acknowledging parties' agreement to transfer to the Blocked Accounts all monies due and other funds payable to or for the account of Austad and/or Austad Holdings under any applicable Third Party Credit Card Agreements; (iv) evidence that all existing Customer Lists, including the Customer Lists of Austad and/or Austad Holdings, have been delivered by HDI to the Customer List Escrow Agent and are being held by the Customer List Escrow Agent pursuant to the Customer List Escrow Agreement; (v) Amended and Restated Intercompany Subordination Agreement between Hanover and Lender; (vi) Amended and Restated Agency Agreement by and among Hanover, Austad and certain Borrowers; (vii) Guarantee and Waiver by Borrowers, other than Austad, in favor of Lender with respect to the Obligations of Austad to Lender; (viii) Guarantee and Waiver by Guarantors, other than Borrowers, Hanover and Austad, in favor of Lender with respect to the Obligations of Austad to Lender; (ix) Guarantee and Waiver by Hanover in favor of Lender with respect to the Obligations of Austad to Lender; (x) Amended and Restated Blocked Account Agreement by and among The First National Bank of Maryland, -16- 17 Borrowers, certain Guarantors and Lender providing for the establishment of a Blocked Account for Austad; and (xi) the delivery by Hanover Finance to Lender of each of the Austad Subordinated Notes with an Allonge Indorsement affixed to each such note providing for the payment of any amounts due under each Austad Subordinated Note to the order of Lender; (e) Austad and Austad Holdings and all other Borrowers and Guarantors shall have duly executed and delivered to Lender such UCC financing statements and other documents and instruments which Lender in its sole discretion has determined are necessary to perfect the security interests of Lender in all assets now or hereafter owned by Austad and Austad Holdings; (f) Lender shall have received a current Appraisal with respect to the Inventory of Austad, prepared at Revolving Loan Borrowers' expense by the Appraiser in form, scope and methodology acceptable to Lender and addressed to Lender, or upon which Lender is expressly permitted to rely, that is satisfactory to Lender and will enable Lender to calculate the Net Orderly Liquidation Value of such Inventory and the Net OLV Percentage with respect thereto; (g) Each of Austad and Austad Holdings shall have delivered to Lender (i) a copy of its Certificate of Incorporation, and all amendments thereto, certified by the Secretary of State of its jurisdiction of incorporation as of the most recent practicable date certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein, (ii) a copy of its By-Laws, certified by the secretary of each of Austad and Austad Holdings, and (iii) a certificate from the secretary of each of Austad and Austad Holdings dated the date hereof certifying that each of the foregoing documents remains in full force and effect and has not been modified or amended, except as described therein; (h) Each of Austad and Austad Holdings shall have delivered to Lender evidence, as of the most recent practicable date, that it is duly qualified and in good standing in each jurisdiction set forth on the First Supplement to Exhibit A to the Loan Agreement annexed hereto; (i) Lender shall have received Secretary's Certificates of Directors' Resolutions with Shareholders' Consent evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by Austad, Austad Holdings and the other Borrowers and other Guarantors of this Amendment and the agreements, documents and instruments to be delivered pursuant to this Amendment, together with such opinions of counsel to Austad, Austad Holdings, the other -17- 18 Borrowers and other Guarantors with respect thereto, addressed to Lender as Lender shall reasonably require, all in form and substance and satisfactory to Lender; (j) Each of Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a form reasonably acceptable to Lender; and (k) Hanover shall have delivered to Lender, in form and substance satisfactory to Lender, consolidating pro forma opening balance sheets as of February 16, 1996 for Austad and Austad Holdings reflecting the separation of the Austad Catalog Division and the Austad Retail Division. 12. Effect of this Amendment. This Amendment and the instruments and agreements delivered pursuant hereto constitute the entire agreement of the parties with respect to the subject matter hereof and thereof, and supersede all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof and thereof. Except as expressly amended pursuant hereto, and except for the acknowledgements expressly set forth herein, no other changes or modifications to the Financing Agreements or waivers of or consents under any provisions thereof are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements are inconsistent with the provisions of this Amendment, such other provision shall be deemed to be amended so that it is made consistent with the provisions of this Amendment. 13. Further Assurances. (a) Borrower shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. (b) Without limiting the provisions of Section 13(a) hereof, Austad shall, or Borrowers and Hanover shall cause Austad to, (i) obtain and deliver to Lender, within thirty (30) days from the date hereof, (A) evidence that Austad has qualified to do business as a foreign corporation in each of the State of Pennsylvania and the State of California and (B) the Final Closing Balance Sheet (as defined in the Austad Reorganization Agreements) and (ii) cause FNBO to remit to an account designated by Lender the balance of any collections or other amounts received by FNBO in respect of the financing arrangements between -18- 19 FNBO and Austad being terminated pursuant to Section 11(b) hereof, after FNBO first applies any such amounts to any checks made by Austad that are presented to FNBO for payment. 14. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 15. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 16. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ Janet S. Last ------------------------- Title: Vice President ---------------------- HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] -19- 20 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S CORP. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- TWEEDS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- HANOVER REALTY, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] -20- 21 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE AUSTAD COMPANY By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC., a Delaware corporation By: /s/ Edward J. O'Brien ---------------------------- Title: Senior Vice President ------------------------- AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- [SIGNATURES CONTINUED ON FOLLOWING PAGE] -21- 22 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] -22- 23 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER DIRECT NEW JERSEY, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] -23- 24 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- LWI RETAIL, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- SKANDIA DOWNSALES, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- TW ACQUISITIONS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- [SIGNATURES CONTINUE ON FOLLOWING PAGE] -24- 25 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- -25- 26 FIRST SUPPLEMENT TO EXHIBIT __ TO LOAN AND SECURITY AGREEMENT The following additional information is hereby added to Exhibit __ to Loan and Security Agreement: -26- 27 FIRST SUPPLEMENT TO EXHIBIT A TO GENERAL SECURITY AGREEMENT, DATED NOVEMBER 14, 1995, BY EXISTING GUARANTORS, OTHER THAN HANOVER, IN FAVOR OF LENDER The following information is hereby added to Exhibit A to General Security Agreement, dated November 14, 1995, by Existing Guarantors, other than Hanover, in favor of Lender: -27- EX-10.20 6 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.20 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of April __, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware Corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware Corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and Hanover Realty, each individually referred to herein as a "Borrower" and collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation ("Aegis Holding"), AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each individually a "Guarantor" and collectively, "Guarantors"). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995, as amended by the First Amendment to Loan and Security Agreement, dated February 22, 1996 (the "Loan Agreement"), pursuant to which Lender has made loans and advances to Borrowers; and WHEREAS, Borrowers and Guarantors have requested that Lender (a) provide temporary, supplemental revolving loans to HDPI of up to the maximum amount of Four Million Dollars ($4,000,000) at any one time outstanding, (b) reduce, on a temporary basis, the required maintenance levels under certain financial covenants contained in the Loan Agreement, (c) release 2 a portion of certain loan availability reserves previously established, and establish a permanent availability reserve in the amount of One Million Dollars ($1,000,000), and (d) enter into certain related amendments to the Loan Agreement and agreements in connection therewith; WHEREAS, the parties to the Loan Agreement desire to enter into this Second Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate the foregoing, to the extent set forth herein, and subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the respective meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, each of the following definitions: (i) "Supplemental Revolving Inventory Loans" shall have the meaning given in Section 2(a) of this Amendment. (ii) "Hanover Rights Offering" shall mean the proposed offering by Hanover of rights to purchase shares of common stock of Hanover, for an aggregate gross issuance price of approximately $40,000,000, as described in the press release, dated March 7, 1996, issued by Hanover, a copy of which is annexed as Exhibit A hereto, and the consummation of the transactions involving the exercise of such rights and the issuance of Hanover's common stock in respect of such exercise, including the standby purchase of any of such common stock by NAR. (iii) "Permanent Availability Reserve" shall have the meaning given in Section 3(a) of this Amendment. (iv) "Temporary Loan Period" shall mean the period commencing on the date hereof and ending on the earlier of (A) June 15, 1996 and (B) the first date of issuance of common stock of Hanover upon the exercise of the rights under, and/or in the case of NAR, its standby purchase of common stock of Hanover pursuant to, the Hanover Rights Offering (regardless of the actual number of rights exercised or shares issued or the amounts received by Hanover from such issuance or exercise). (b) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms -2- 3 used herein that are defined in the Loan Agreement, shall have the respective meanings given to such terms in the Loan Agreement. 2. Supplemental Revolving Inventory Loan Availability. (a) Subject to the terms and conditions contained herein and all of the terms and conditions of the Loan Agreement as amended hereby, Lender agrees that, after giving effect to the adjustments to certain availability reserves described in Section 3 hereof, to make available to HDPI from time to time during the Temporary Loan Period and permit to remain outstanding during the Temporary Loan Period, additional Revolving Inventory Loans in the aggregate principal amount of Four Million Dollars ($4,000,000) at any one time outstanding in excess of the aggregate amount of Revolving Inventory Loans otherwise determined by Lender to be available to HDPI pursuant to Section 2.1(b) of the Loan Agreement (the "Supplemental Revolving Inventory Loans"). (b) The Supplemental Revolving Inventory Loans (i) shall constitute part of and shall be deemed Revolving Inventory Loans, and as such shall constitute Obligations of HDPI, for all purposes under the Loan Agreement and the other Financing Agreements, except that during the Temporary Loan Period the sublimit on Revolving Inventory Loans to HDPI contained in Section 2.2(b) shall not be applicable to the Supplemental Revolving Inventory Loans, (ii) shall be subject to (A) Lender's right to establish reserves against availability of Revolving Loans and Letter of Credit Accommodations pursuant to Section 2.6 of the Loan Agreement, and all the other terms and conditions set forth herein and in the Loan Agreement and the other Financing Agreements, except as expressly set forth in clause (i) of this Section , (iii) shall be repaid on or prior to the expiration of the Temporary Loan Period in accordance with the provisions of this Amendment, the Loan Agreement as amended hereby and the other Financing Agreements, and (iv) shall be secured by all of the Collateral. 3. Release of Part of Existing Availability Reserves; Establishment of Permanent Availability Reserve. (a) In place of Lender's continued maintenance of the reserve against Revolving Loan Availability as provided in paragraph 2 of the letter agreement re: Post-Closing Items, dated November 14, 1995, among Lender and Borrowers, Lender shall release the remaining unreleased portion of such reserve, except for $1,000,000 thereof, which shall be maintained at all times hereafter by Lender as a permanent reserve against the Revolving Loan availability of HDPI (the "Permanent Availability Reserve"), and the provisions of such letter agreement providing for release of such previously established availability reserve shall be of no further force and effect. -3- 4 (b) The Permanent Availability Reserve shall be in addition to, and not in limitation of, the rights of Lender to establish other and further reserves against the availability of Revolving Loans and Letter of Credit Accommodations under the Loan Agreement and the other Financing Agreements. 4. Amendment Fee. In addition to all other fees, charges, interest and expenses payable by Borrowers to Lender under the Loan Agreement and the other Financing Agreements, HDPI shall pay to Lender a fee for entering into this Amendment in the amount of Forty Thousand Dollars ($40,000), which amount is fully earned and payable as of the date hereof and may be charged directly to HDPI's loan account maintained by Lender in respect of the Revolving Loans. 5. Consolidated Working Capital. Notwithstanding Section 6.19 of the Loan Agreement, as of the end of each fiscal month occurring during the period commencing on the date hereof and ending on the last day of the Temporary Loan Period, Hanover shall only be required to maintain Consolidated Working Capital, calculated on a consolidated basis for Hanover and its Subsidiaries, of not less than Twenty One Million Dollars ($21,000,000). As of the end of each fiscal month ending after the last day of the Temporary Loan Period, Hanover shall maintain Consolidated Working Capital as provided in Section 6.19 of the Loan Agreement. 6. Consolidated Net Worth. Notwithstanding Section 6.20 of the Loan Agreement, as of the end of each fiscal month occurring during the period commencing on the date hereof and ending on the last day of the Temporary Loan Period, Hanover shall only be required to maintain Consolidated Net Worth, calculated on a consolidated basis for Hanover and its Subsidiaries, of at least Seventy-Five Million Dollars ($75,000,000). As of the end of each fiscal month ending after the last day of the Temporary Loan Period, Hanover shall maintain Consolidated Net Worth as provided in Section 6.20 of the Loan Agreement. 7. Hanover Rights Offering. Upon receipt of proceeds of the Hanover Rights Offering, net of commissions and expenses relating thereto, Hanover shall use all such net proceeds, to the extent necessary to satisfy fully the following requirement, to make a capital contribution or intercompany advance (i) to HDPI to be used by HDPI to repay to Lender all Supplemental Revolving Inventory Loans then outstanding, and (ii) to the Borrowers (including HDPI), to the extent the outstanding Obligations (excluding the aggregate outstanding principal amount of the Term Loans) exceeds the aggregate amount of Revolving Loans determined by Lender pursuant to the lending formulas and subject to the sublimits and reserves provided for or established pursuant to the Loan Agreement as amended hereby, to be used by the respective Borrowers to repay to Lender such excess, in each case under clauses (i) and (ii) before using any such proceeds for any -4- 5 other purpose, whether contemplated by the March 7, 1996 press release annexed hereto as Exhibit A, or otherwise. 8. New Collateral Locations. For purposes of clarifying the scope of Section 5.7(b) of the Loan Agreement, the movement of Inventory or Equipment or other Collateral of a Borrower or Guarantor to a location which has been disclosed on Exhibit C to the Loan Agreement as a location of Collateral of that type of another Borrower or Guarantor, but not that particular Borrower or Guarantor, shall be considered the opening of a new location, subject to the prior notice and other requirements provided in or contemplated by Section 5.7(b). Concurrently herewith, Borrowers and Guarantors shall deliver an updated Exhibit C to the Loan Agreement and shall execute or cause to be executed and/or delivered such additional UCC financing statements and other agreements provided in or contemplated by Section 5.7(b) or in connection with the mergers referred to in Section 9 hereof, in each case as Lender shall require with respect to any Collateral locations for particular Borrowers or Guarantors that were not originally shown on Exhibit C to the Loan Agreement as Collateral locations as to any type(s) of Collateral for those particular Borrowers or Guarantors. 9. Certain Mergers. Anything contained in Section 6.7 of the Loan Agreement to the contrary notwithstanding, the mergers of certain Guarantors as described in the footnotes appearing on the updated Exhibit C to the Loan Agreement delivered pursuant to Section 8 of this Amendment are hereby acknowledged and approved by Lender, Borrowers and Guarantors as of the effective dates thereof. 10. Pledge of Note Payable to LWI. Upon execution and delivery of the promissory note to be executed by Woodworkers Supply, Inc., payable to LWI Holdings, Inc. in connection with the Asset Purchase Agreement, dated March 29, 1996, by and among LWI Holdings, Inc., Hanover and Woodworkers Supply, Inc., LWI Holdings, Inc. shall deliver to Lender, as pledgee pursuant to the Loan Agreement, such note together with an allonge indorsement affixed to such note providing for the payment of all amounts due thereunder to the order of Lender. 11. Representations and Warranties. Borrowers represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) This Amendment has been duly authorized, executed and delivered by all necessary action of each of the Borrowers and Guarantors which is a party hereto, and is in full -5- 6 force and effect, and the agreements and obligations of Borrowers and Guarantors, as the case may be, contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. (b) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects, and except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (c) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. 12. Conditions Precedent. Concurrently with the execution hereof, and as a further condition to the effectiveness of this Amendment and the agreement of Lender to the modifications and amendments set forth in this Amendment: (a) Lender shall have received an original of this Amendment, in form and substance satisfactory to Lender and its counsel, duly authorized, executed and delivered by Borrowers and Guarantors; and (b) each of Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a form reasonably acceptable to Lender. 13. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. Except as expressly provided herein, no other changes or modifications to the Loan Agreement and no changes or modifications to the Subordination Agreement dated November 14, 1995 between IMR and Lender, or any of the other Financing Agreements, or waivers of or consents under any provisions of any of the foregoing, are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. -6- 7 14. Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 15. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 16. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 17. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ Janet S. Last ------------------------- Title: Vice President ---------------------- HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Wayne Garten ------------------------- Title: /s/ Executive Vice President ---------------------- BRAWN OF CALIFORNIA, INC. By: /s/ Wayne Garten ------------------------- Title: /s/ Vice President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -7- 8 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S BY MAIL, INC. By: /s/ Wayne Garten ------------------------- Title: Executive Vice President ---------------------- GUMP'S CORP. By: /s/ Wayne Garten ------------------------- Title: President ---------------------- THE COMPANY STORE, INC. By: /s/ Wayne Garten ------------------------- Title: Vice President ---------------------- TWEEDS, INC. By: /s/ Wayne Garten ------------------------- Title: Vice President ---------------------- LWI HOLDINGS, INC. By: /s/ Wayne Garten ------------------------- Title: President ---------------------- AEGIS CATALOG CORPORATION By: /s/ Wayne Garten ------------------------- Title: President ---------------------- HANOVER DIRECT VIRGINIA INC. By: /s/ Wayne Garten ------------------------- Title: President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -8- 9 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER REALTY, INC. By: /s/ Wayne Garten ------------------------- Title: President ---------------------- THE AUSTAD COMPANY By: /s/ Wayne Garten ------------------------- Title: Vice President ---------------------- By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -9- 10 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -10- 11 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -11- 12 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- LWI RETAIL, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -12- 13 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- -13- EX-10.21 7 THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.21 THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of May __, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware Corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware Corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and Hanover Realty, each individually referred to herein as a "Borrower" and collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation ("Aegis Holding"), AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each individually a "Guarantor" and collectively, "Guarantors"). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995, as amended by the First Amendment to Loan and Security Agreement, dated February 22, 1996, and the Second Amendment to Loan and Security Agreement, dated April 16, 1996 (the "Loan Agreement"), pursuant to which Lender has made loans and advances to Borrowers; and WHEREAS, Borrowers and Guarantors have requested that Lender enter into certain amendments to the Loan Agreement and agreements in connection with the making of a loan by Quadrant 2 Management, Inc. to Hanover of up to $25,000,000; and WHEREAS, the parties to the Loan Agreement desire to enter into this Third Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate the foregoing, to the extent set forth herein, and subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the respective meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, each of the following definitions: (i) "Quadrant Management" shall mean Quadrant Management, Inc., a Delaware corporation, and its successors and assigns. (ii) "$25,000,000 Subordinated Note" shall mean the Subordinated Promissory Note, dated of even date herewith, by Hanover payable to Quadrant Management in the original principal amount of up to $25,000,000. (b) Amendments to Definitions. (i) Section 1.22 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "1.22 "Consolidated Net Worth" shall mean, as to any Person, at any time, in accordance with generally accepted accounting principles, as in effect from time to time consistently applied, on a consolidated basis for such Person and its Subsidiaries, the amount equal to the result obtained by taking total assets and subtracting therefrom total liabilities of such Person and its Subsidiaries; provided, however, (a) that solely for purposes of calculating Consolidated Net Worth of Hanover and its Subsidiaries as at the end of Hanover's 1995 fiscal year, up to $4,500,000 in write-downs of Hanover's deferred taxes asset, as required pursuant to Financial Accounting Standards No. 109, due to losses incurred by Hanover and its Subsidiaries in such fiscal year, shall not be considered reductions of the deferred taxes asset of Hanover and (b) that for purposes -2- 3 of calculating Consolidated Net Worth of Hanover and its Subsidiaries, the outstanding Indebtedness for Borrowed Money evidenced by the $25,000,000 Subordinated Note shall not be considered a liability of Hanover." (ii) Section 1.23 of the Loan Agreement is hereby amended by deleting the proviso appearing at the end thereof and substituting the following proviso therefor: "; provided, however, that solely for purposes of calculating Consolidated Working Capital hereunder, the outstanding balance of the Revolving Loans and Term Loans and the outstanding balance of the $25,000,000 Subordinated Note shall not be considered current liabilities." (c) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein that are defined in the Loan Agreement, shall have the respective meanings given to such terms in the Loan Agreement. 2. Proceeds of Subordinated Loan; Assignment. Hanover agrees to use the proceeds of the loans evidenced by the $25,000,000 Subordinated Note only for general operating, working capital of Borrowers and for other proper corporate purposes of Hanover not otherwise prohibited by the terms of the Financing Agreements. None of the proceeds of the loans evidenced by the $25,000,000 Subordinated Note shall be used, directly or indirectly, for the payment of any of the outstanding obligations of Hanover under the 9.25% Notes, other than, after the assignment to NAR or a wholly-owned subsidiary of NAR the $25,000,000 Subordinated Note, upon the application thereof to the obligations of NAR or such subsidiary of NAR to purchase common stock of Hanover, in each case, to the extent such assignment and application are permitted under the subordination agreement referred to in Section 4(b) hereof. Following the assignment of the $25,000,000 Subordinated Note to NAR or a wholly-owned subsidiary of NAR as permitted under such subordination agreement, Hanover will not borrow additional amounts under the $25,000,000 Subordinated Note unless and until such assignee (which shall be the lender thereunder as to future loans evidenced thereunder) shall have entered into the "NAR Agreement" as defined in the subordination agreement referred to in Section 4(b) hereof, and delivered the opinions and certified resolutions to be delivered to Lender pursuant thereto, all in form and substance satisfactory to Lender. 3. Representations and Warranties. Borrowers represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the -3- 4 representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) This Amendment has been duly authorized, executed and delivered by all necessary action of each of the Borrowers and Guarantors which is a party hereto, and is in full force and effect, and the agreements and obligations of Borrowers and Guarantors, as the case may be, contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. (b) Neither the execution and delivery of the $25,000,000 Subordinated Note, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof, (i) has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect or (ii) does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instruments to which Hanover or any other Guarantor or any Borrower is a party or may be bound, or (iii) does or shall violate any provision of the Certificate of Incorporation or ByLaws of Hanover or any other Guarantor or any Borrower. (c) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (d) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. 4. Conditions Precedent. Concurrently with the execution hereof, and as a further condition to the effectiveness of this Amendment and the agreement of Lender to the modifica- tions and amendments set forth in this Amendment: (a) Lender shall have received an original of this Amendment, in form and substance satisfactory to Lender and its counsel, duly authorized, executed and delivered by Borrowers and Guarantors; (b) Lender shall have received, in form and substance satisfactory to Lender, an original written subordination agreement, dated of even date herewith, between -4- 5 Quadrant Management and Lender, duly authorized, executed and delivered by Quadrant Management, pursuant to which, among other things, Quadrant Management shall have subordinated its right to payment under the $25,000,000 Subordinated Note and related obligations to the right of Lender to receive the prior indefeasible payment in full of all of the Obligations; (c) Lender shall have received the Secretary's Certificates of Directors' Resolutions evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by Quadrant Management of the subordination agreement described in Section 4(b) hereof, together with such opinions of counsel to Quadrant Management with respect thereto, addressed to Lender, as Lender shall reasonably require, all in form and substance satisfactory to Lender; and (d) each of Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a form reasonably acceptable to Lender. 5. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. Except as expressly provided herein, no other changes or modifications to the Loan Agreement or any of the other Financing Agreements, or waivers of or consents under any provisions of any of the foregoing, are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. (a) Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. (b) Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 6. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. -5- 6 7. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ Jennifer S. Last ------------------------ Title: Vice President --------------------- HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- GUMP'S CORP. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -6- 7 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- TWEEDS, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- HANOVER REALTY, INC. By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- THE AUSTAD COMPANY By: /s/ Edward J. O'Brien ------------------------ Title: Vice President --------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -7- 8 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Senior Vice President ------------------------ AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien -------------------------- Title: Vice President ------------------------ AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President ------------------------ AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President ------------------------ AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien -------------------------- Title: Vice President ------------------------ [SIGNATURES CONTINUE ON NEXT PAGE] -8- 9 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -9- 10 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -10- 11 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ___________________________ Title: Vice President ________________________ LMI RETAIL, INC. By: /s/ Edward J. O'Brien ___________________________ Title: Vice President ________________________ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ___________________________ Title: Vice President ________________________ TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ___________________________ Title: Vice President ________________________ YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ___________________________ Title: Vice President ________________________ AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ___________________________ Title: Vice President ________________________ -11- EX-10.22 8 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.22 FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of May __, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware Corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware Corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and Hanover Realty, each individually referred to herein as a "Borrower" and collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation ("Aegis Holding"), AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each individually a "Guarantor" and collectively, "Guarantors"). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995, as amended by the First Amendment to Loan and Security Agreement, dated February 22, 1996, and the Second Amendment to Loan and Security Agreement, dated April 16, 1996 (the "Loan Agreement"), pursuant to which Lender has made loans and advances to Borrowers; and WHEREAS, Borrowers and Guarantors have requested that Lender enter into certain amendments to the Loan Agreement and agreements in connection with the making of a loan of up to $25,000,000 to Hanover by Intercontinental Mining & Resources 2 Incorporated ("IMR") to be used in part to repay the loan previously made by Quadrant Management, Inc. to Hanover in the principal amount of $4,000,000; and WHEREAS, the parties to the Loan Agreement desire to enter into this Fourth Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate the foregoing, to the extent set forth herein, and subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definition. As used herein or in any of the other Financing Agreements, the following term shall have the meaning given to it below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following definition: "$25,000,000 IMR Subordinated Note" shall mean the Subordinated Promissory Note, dated of even date herewith, by Hanover payable to IMR in the original principal amount of up to $25,000,000. (b) Amendments to Definitions. (i) Section 1.22 of the Loan Agreement is hereby deleted in its entirety and replaced with the following, effective as of the date hereof: "1.22 "Consolidated Net Worth" shall mean, as to any Person, at any time, in accordance with generally accepted accounting principles, as in effect from time to time consistently applied, on a consolidated basis for such Person and its Subsidiaries, the amount equal to the result obtained by taking total assets and subtracting therefrom total liabilities of such Person and its Subsidiaries; provided, however, (a) that solely for purposes of calculating Consolidated Net Worth of Hanover and its Subsidiaries as at the end of Hanover's 1995 fiscal year, up to $4,500,000 in write-downs of Hanover's deferred taxes asset, as required pursuant to Financial Accounting Standards No. 109, due to losses incurred by Hanover and its Subsidiaries in such fiscal year, shall not be considered reductions of the deferred taxes asset of Hanover and (b) that for purposes of calculating Consolidated Net Worth of Hanover and its Subsidiaries, the outstanding Indebtedness for Borrowed Money evidenced by the $25,000,000 -2- 3 IMR Subordinated Note shall not be considered a liability of Hanover." (ii) Section 1.23 of the Loan Agreement is hereby amended by deleting the proviso appearing at the end thereof and substituting the following proviso therefor, effective as of the date hereof: "; provided, however, that solely for purposes of calculating Consolidated Working Capital hereunder, the outstanding balance of the Revolving Loans and Term Loans and the outstanding balance of the $25,000,000 IMR Subordinated Note shall not be considered current liabilities." (c) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein that are defined in the Loan Agreement, shall have the respective meanings given to such terms in the Loan Agreement. 2. Proceeds of IMR Subordinated Loan; Assignment. Hanover agrees to use the proceeds of the loans evidenced by the $25,000,000 IMR Subordinated Note only to repay in full the unpaid principal indebtedness evidenced by the $25,000,000 Subordinated Note (i.e., the Subordinated Promissory Note dated May 24, 1996 by Hanover payable to Quadrant Management in the principal amount of up to $25,000,000), which note shall thereupon be cancelled, and thereafter such loans shall be used only for general operating, working capital of Borrowers and for other proper corporate purposes of Hanover not otherwise prohibited by the terms of the Financing Agreements. None of the proceeds of the loans evidenced by the $25,000,000 IMR Subordinated Note shall be used, directly or indirectly, for the payment of any of the outstanding obligations of Hanover under the 9.25% Notes, other than, after the assignment to NAR or a wholly-owned subsidiary of NAR the $25,000,000 IMR Subordinated Note, upon the application thereof to the obligations of NAR or such subsidiary of NAR to purchase common stock of Hanover, in each case, to the extent such assignment and application are permitted under the subordination agreement referred to in Section 4(b) hereof. Following the assignment of the $25,000,000 IMR Subordinated Note to NAR or a wholly-owned subsidiary of NAR as permitted under such subordination agreement, Hanover will not borrow additional amounts under the $25,000,000 IMR Subordinated Note unless and until such assignee (which shall be the lender thereunder as to future loans evidenced thereunder) shall have entered into the "NAR Agreement" as defined in the subordination agreement referred to in Section 4(b) hereof, and delivered the opinions and certified resolutions to be delivered to Lender pursuant thereto, all in form and substance satisfactory to Lender. 3. Representations and Warranties. Borrowers represent, warrant and covenant with and to Lender as follows, -3- 4 which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) This Amendment has been duly authorized, executed and delivered by all necessary action of each of the Borrowers and Guarantors which is a party hereto, and is in full force and effect, and the agreements and obligations of Borrowers and Guarantors, as the case may be, contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. (b) Neither the execution and delivery of the $25,000,000 IMR Subordinated Note, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof, (i) has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect or (ii) does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instruments to which Hanover or any other Guarantor or any Borrower is a party or may be bound, or (iii) does or shall violate any provision of the Certificate of Incorporation or ByLaws of Hanover or any other Guarantor or any Borrower. (c) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (d) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. 4. Conditions Precedent. Concurrently with the execution hereof, and as a further condition to the effectiveness of this Amendment and the agreement of Lender to the modifications and amendments set forth in this Amendment: (a) Lender shall have received an original of this Amendment, in form and substance satisfactory to Lender and its counsel, duly authorized, executed and delivered by Borrowers and Guarantors; (b) Lender shall have received, in form and -4- 5 substance satisfactory to Lender, an original written subordination agreement, dated of even date herewith, between IMR and Lender, duly authorized, executed and delivered by IMR, pursuant to which, among other things, IMR shall have subordinated its right to payment under the $25,000,000 IMR Subordinated Note and related obligations to the right of Lender to receive the prior indefeasible payment in full of all of the Obligations; (c) Lender shall have received the Secretary's Certificates of Directors' Resolutions evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by IMR of the subordination agreement described in Section 4(b) hereof, together with such opinions of counsel to IMR with respect thereto, addressed to Lender, as Lender shall reasonably require, all in form and substance satisfactory to Lender; (d) All of the unpaid principal indebtedness evidenced by the $25,000,000 Subordinated Note (i.e., the Subordinated Promissory Note dated May 24, 1996, in the principal amount of up to $25,000,000, by Hanover payable to Quadrant Management) shall have been paid in full and such note shall have been marked "canceled", and a copy thereof furnished to Lender, who hereby consents to such payment out of a portion of the proceeds of the initial loans made by IMR and evidenced by the $25,000,000 IMR Subordinated Note; and (e) each of Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person, and such consent, approval or waiver shall be in a form reasonably acceptable to Lender. 5. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. Except as expressly provided herein, no other changes or modifications to the Loan Agreement or any of the other Financing Agreements, or waivers of or consents under any provisions of any of the foregoing, are intended or implied, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. (a) Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. -5- 6 (b) Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 6. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 7. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ Janet S. Last _________________________ Title: Vice President ______________________ HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ GUMP'S CORP. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] -6- 7 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ TWEEDS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ HANOVER REALTY, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ THE AUSTAD COMPANY By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] -7- 8 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Senior Vice President _________________________ AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -8- 9 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -9- 10 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -10- 11 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LWI RETAIL, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ -11- EX-10.23 9 FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.23 FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of September 11, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and Hanover Realty, each individually referred to herein as a "Borrower" and collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each individually a "Guarantor" and collectively, "Guarantors"). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995, as amended by the First Amendment to Loan and Security Agreement, dated February 22, 1996, the Second Amendment to Loan and Security Agreement, dated April 16, 1996, the Third Amendment to Loan and Security Agreement, dated May 24, 1996, and the Fourth Amendment to Loan and Security Agreement, dated May 31, 1996 (the "Loan Agreement"), pursuant to which Lender has made loans and advances to Borrowers; and 2 WHEREAS, Borrowers and Guarantors have informed Lender that an Appraisal of the Inventory of Revolving Loan Borrowers presently being conducted by the Appraiser is expected to indicate that the Value of the Eligible Inventory of Revolving Loan Borrowers, the Net Orderly Liquidation Value of the Eligible Inventory of Revolving Loan Borrowers, other than Gump's, and the Net GOB Value of Eligible Inventory of Gump's are lower than such values of the Eligible Inventory of such Revolving Loan Borrowers contained in the Appraisal, dated September 28, 1995, with respect to the Inventory of Revolving Loan Borrowers, which is the most recent Appraisal heretofore delivered to Lender; and WHEREAS, Borrowers and Guarantors have requested that Lender, solely as an accommodation to Borrowers and Guarantors, defer on a temporary basis making an adjustment to the Inventory Loan Formulas based on the results of the Appraisal presently being conducted; and WHEREAS, Borrowers and Guarantors have informed Lender that IMR intends to make a loan to Hanover in the original principal amount of $10,000,000, the proceeds of which will be used solely by Hanover to make intercompany loan(s) to Revolving Loan Borrowers, to be used by Revolving Loan Borrowers solely for working capital purposes of Revolving Loan Borrowers; and WHEREAS, Borrowers and Guarantors have requested that Lender waive the failure of Deferred Billing Borrowers to satisfy the Accounts Loan Financial Test with respect to the Measurement Quarters for certain Program Quarters, temporarily waive a certain Event of Default, and agree to increase temporarily the Revolving Accounts Loan sublimit; and WHEREAS, Lender is willing to agree to the foregoing, subject to the terms and conditions contained herein; and WHEREAS, the parties to the Loan Agreement desire to enter into this Fifth Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate such amendments, agreements and waivers to the extent set forth herein, and subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the meanings given to them below, and the Loan Agreement -2- 3 shall be deemed and is hereby amended to include, in addition and not in limitation, the following definitions: (i) "Accounts Sublimit Increase Period" shall mean the period commencing on November 15, 1996 and ending on January 15, 1997. (ii) "Inventory Formula Non-Adjustment Period" shall mean the period commencing on the date hereof and ending on the earlier of (A) the close of business on November 14, 1996, subject to the second proviso contained in Section 2(b)(i) of this Amendment, or (B) the occurrence or existence of an Incipient Default or Event of Default. (iii) "September 1996 Appraisal" shall mean the Appraisal prepared by Daley-Hodkin Appraisal Corporation, expected to be delivered to Lender during September 1996, setting forth the Values of the Inventory of Revolving Loan Borrowers, the Net Orderly Liquidation Value of Inventory of Revolving Loan Borrowers, other than Gump's, and the Net GOB Value of Gump's Inventory. (iv) "September 1996 Intercompany Loans" shall mean the intercompany loans made, contemporaneously herewith, by Hanover to the Revolving Loan Borrowers, funded with the proceeds of the $10,000,000 IMR Loan. (v) "$10,000,000 IMR Loan" shall mean the loan in the original principal sum of $10,000,000 made by IMR to Hanover, contemporaneously herewith. (vi) "$10,000,000 IMR Note" shall mean the Promissory Note, dated of even date herewith, by Hanover payable to IMR in the original principal amount of $10,000,000 delivered to evidence the $10,000,000 IMR Loan plus interest thereon. (b) Amendment to Definition. Section 1.23 of the Loan Agreement is hereby amended by deleting the proviso appearing at the end thereof and substituting the following proviso therefor, effective as of the date hereof: "; provided, however, that solely for purposes of calculating Consolidated Working Capital hereunder, the outstanding balance of the Revolving Loans and Term Loans and the outstanding balance of the $10,000,000 IMR Note shall not be considered current liabilities." (c) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein that are defined in the Loan Agreement, shall have -3- 4 the respective meanings given to such terms in the Loan Agreement. 2. Use of Proceeds and Repayment of IMR Loan. (a) Hanover agrees to use the proceeds of the $10,000,000 IMR Loan solely to make the September 1996 Intercompany Loans to Revolving Loan Borrowers and Revolving Loan Borrowers agree to use the proceeds of such intercompany loans from Hanover solely for working capital purposes of Revolving Loan Borrowers. Hanover and Revolving Loan Borrowers shall arrange for the disbursement of the $10,000,000 IMR Loan and the corresponding September 1996 Intercompany Loans by Hanover to Revolving Loan Borrowers, by wire transfer(s) directly from IMR to Lender, for credit to the applicable Revolving Loan Borrowers' Revolving Loan accounts maintained by Lender. (b) Notwithstanding Section 6.5(b)(ii) of the Loan Agreement, (i) Revolving Loan Borrowers may, on November 14, 1996, use the proceeds of Revolving Loans made on November 14, 1996, to make payments to Hanover, or directly to IMR at the direction of Hanover, in respect of the valid intercompany Indebtedness owed to Hanover in respect of the September 1996 Intercompany Loans; provided, that, (A) Lender shall have received from Hanover, by no later than 11:00 a.m. on November 14, 1996, (1) written notice setting forth the amount of the payment proposed to be made on November 14, 1996 by Revolving Loan Borrowers to Hanover or to IMR at the direction of Hanover, in respect of the then-outstanding amount of Indebtedness in respect of the September 1996 Intercompany Loans, which amounts shall then be used by Hanover (or credited by IMR if received directly) to repay the then-outstanding balance of the Indebtedness of Hanover evidenced by the $10,000,000 IMR Note, and (2) all information not then in the possession of Lender necessary to make the calculation of Excess Availability on November 14, 1996 in accordance with clause (i)(B) below, and (B) Lender has advised Hanover that Revolving Loan Borrowers will have Excess Availability of not less than Twelve Million Five Hundred Thousand Dollars ($12,500,000) on November 14, 1996 immediately prior to making such payment but after giving effect to the application of proceeds of Collateral received by Lender on such date and after giving effect to any other Loans or Letter of Credit Accommodations to be made or provided on such date; provided further, that, if Lender does not advise Hanover on November 14, 1996 of the amount of Excess Availability (if any) available to Revolving Loan Borrowers as provided in the foregoing clause (i)(B), but subject to the conditions set forth in the foregoing clause (i)(A), the Inventory Formula Non-Adjustment Period shall be extended until the close of business -4- 5 on the date Lender has advised Hanover of the amount of such Excess Availability (if any); and (ii) Revolving Loan Borrowers may use the proceeds of Revolving Loans made on or after November 15, 1996 to make payments on or after November 15, 1996 to Hanover, or to IMR at the direction of Hanover, in respect of the valid intercompany Indebtedness owed to Hanover in respect of the September 1996 Intercompany Loans; provided, that, (A) Lender shall have received from Hanover, by no later than 11:00 a.m. on each date of proposed payment, (1) written notice setting forth the amount of such proposed payment to be made by Revolving Loan Borrowers to Hanover or to IMR at the direction of Hanover, in respect of the then-outstanding amount of Indebtedness in respect of the September 1996 Intercompany Loans, which amounts shall then be used by Hanover (or credited by IMR if received directly) to repay the then-outstanding balance of the Indebtedness of Hanover evidenced by the $10,000,000 IMR Note, and (2) all information not then in the possession of Lender necessary to make the calculation of Excess Availability on such date in accordance with clause (ii)(B) below and (B) Lender has advised Hanover on such date of proposed repayment that Revolving Loan Borrowers will have Excess Availability of not less than Two Million Five Hundred Thousand Dollars ($2,500,000) immediately after giving effect to such payment, the application of proceeds of Collateral received by Lender on such date and after giving effect to any other Loans or Letter of Credit Accommodations to be made or provided on such date. (c) For purposes of Lender's determination of Excess Availability, Excess Availability shall be calculated based upon the Revolving Loan Formulas, the applicable lending sublimits with respect to each Revolving Loan Borrower and the Revolving Loan Limit, as each is then in effect on the date of any such determination. 3. Certain Reductions in Inventory Lending Formulas. (a) Notwithstanding the absolute right of Lender to reduce the Inventory Loan Formulas based upon the September 1996 Appraisal, which right is hereby confirmed by Borrowers and Guarantors, but without limiting any other rights or remedies of Lender under the Loan Agreement and in the other Financing Agreements, Lender agrees, as an accommodation to Borrowers and Guarantors, during the Inventory Formula Non-Adjustment Period, to defer making adjustments in the Inventory Loan Formulas to the extent based on the results of the September 1996 Appraisal. (b) Immediately upon the termination of the Inventory Formula Non-Adjustment Period, or at any time or times thereafter, Lender shall have the right, in its absolute discretion, to make any adjustments to the Inventory Loan -5- 6 Formulas then or thereafter in effect as Lender shall determine based on the results of the September 1996 Appraisal. (c) Nothing contained in this Amendment shall in any way (i) limit or affect Lender's rights or remedies to adjust the Revolving Loan Formulas for any reasons, other than the deferral of adjustments based on than the results of the September 1996 Appraisal for the period and on the terms provided herein, or (ii) limit or affect Lender's rights or remedies upon an Event of Default or Incipient Default. 4. Waivers. Subject to the terms and conditions contained herein: (a) Lender hereby waives, but only with respect to the Program Quarters ending prior to December 29, 1996, the failure of Deferred Billing Borrowers to satisfy the Accounts Loan Financial Test with respect to the respective Measurement Quarters applicable to such Program Quarters; and (b) Lender hereby waives, but only for the period effective as of the date hereof and ending on the close of business on December 31, 1996, any Event of Default arising under Section 7.1(i) of the Loan Agreement consisting solely of the cumulative losses of Hanover and its Subsidiaries incurred from November 14, 1995 through September 28, 1996. The foregoing temporary waiver under Section 4(b) hereof shall not be deemed to limit or impair Lender's rights or remedies in respect of any Event of Default arising under Section 7.1(b) of the Loan Agreement by reason of breach of the financial covenants set forth in Section 6.19 or Section 6.20 of the Loan Agreement, none of which Events of Default, rights or remedies are being waived hereby, temporarily or otherwise. 5. Deferred Billing Receivables Advance Rate. Effective immediately, Section 2.1(a) of the Loan Agreement shall be deemed amended by deleting the words "eighty percent (80%)" between the word "to" and the word "of" in the fifth line of Section 2.1(a) of the Loan Agreement and substituting therefor the words "seventy percent (70%)." 6. Temporary Increase in Revolving Accounts Loan Sublimit. Notwithstanding Section 2.2(j) of the Loan Agreement, but subject to all other rights of Lender under the Loan Agreement and the other Financing Agreements, during the Accounts Sublimit Increase Period, the aggregate amount of Revolving Accounts Loans for all Deferred Billing Borrowers shall not at any one time outstanding exceed Eleven Million Dollars ($11,000,000). Lender shall have the right, from time to time during the Accounts Sublimit Increase Period, to establish and revise Revolving Accounts Loan sublimits for each Deferred Billing Borrower, within the overall Eleven Million Dollar ($11,000,000) sublimit applicable to all Revolving Accounts Loans. On and after the close of business on the last day of the Accounts Sublimit Increase Period, (i) the aggregate amount of -6- 7 Revolving Accounts Loans for all Deferred Billing Borrowers shall not at any one time outstanding exceed Ten Million Dollars ($10,000,000) and (ii) Lender shall have the right, from time to time thereafter, to establish and revise Revolving Accounts Loan sublimits for each Deferred Billing Borrower, within the overall Ten Million Dollar ($10,000,000) sublimit applicable to all Revolving Accounts Loans. 7. Representations and Warranties. Borrowers represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) This Amendment has been duly authorized, executed and delivered by all necessary action of each of the Borrowers and Guarantors which is a party hereto, and is in full force and effect, and the agreements and obligations of Borrowers and Guarantors, as the case may be, contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. (b) Neither the execution and delivery of the $10,000,000 IMR Note, the making of the September 1996 Intercompany Loans, or any other agreements, documents or instruments in connection therewith, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof (i) has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect, or (ii) does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instrument to which Hanover or any other Guarantor or any Borrower is a party or may be bound, or (iii) does or shall violate any provision of the Certificate of Incorporation or ByLaws of Hanover or any other Guarantor or any Borrower. (c) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. -7- 8 (d) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. 8. Conditions Precedent. Concurrently with the execution hereof, and as a condition to the effectiveness of this Amendment and the agreement of Lender to the modifications, waivers and amendments set forth in this Amendment: (a) Lender shall have received an original of this Amendment, in form and substance satisfactory to Lender and its counsel, duly authorized, executed and delivered by Borrowers and Guarantors; and (b) Lender shall have received, each in form and substance satisfactory to Lender, (i) a true and complete copy of the $10,000,000 IMR Note and all agreements, documents and instruments relating thereto, and (ii) a letter agreement among IMR, Hanover and Lender acknowledging, among other things, the terms and conditions of the repayment of the September 1996 Intercompany Loans and of the indebtedness evidenced by the $10,000,000 IMR Note, each duly authorized, executed and delivered by Hanover and IMR. 9. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. No waivers of Events of Default or Incipient Defaults and, except as expressly provided herein, no other waivers or any modifications to the Loan Agreement or any of the other Financing Agreements, or consents under any provisions of any of the foregoing, are intended or implied by this Amendment, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. 10. Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 11. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). -8- 9 12. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 13. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ Janet S. Last _________________________ Title: Vice President ______________________ HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ GUMP'S CORP. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] -9- 10 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ TWEEDS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ HANOVER REALTY, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ THE AUSTAD COMPANY By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] -10- 11 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Senior Vice President ------------------------ AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ [SIGNATURES CONTINUE ON NEXT PAGE] -11- 12 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ [SIGNATURES CONTINUE ON NEXT PAGE] -12- 13 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LWI RETAIL, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -13- 14 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ------------------------- YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ------------------------- AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ------------------------- -14- EX-10.24 10 SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.24 SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of December 5, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and Hanover Realty, each individually referred to herein as a "Borrower" and collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each individually a "Guarantor" and collectively, "Guarantors"). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995, as amended by the First Amendment to Loan and Security Agreement, dated February 22, 1996, the Second Amendment to Loan and Security Agreement, dated April 16, 1996, the Third Amendment to Loan and Security Agreement, dated May 24, 1996, the Fourth Amendment to Loan and Security Agreement, dated May 31, 1996, and the Fifth Amendment to Loan and Security Agreement, dated September 11, 1996 (collectively, the "Loan Agreement"), pursuant 2 to which Lender has made loans and advances and provided other financial accommodations to Borrowers; and WHEREAS, Borrowers and Guarantors have informed Lender that Richemont Finance S.A. intends to make a loan to Hanover in the original principal amount of $10,000,000, the proceeds of which will be used solely by Hanover to make intercompany loan(s) to Revolving Loan Borrowers, to be used by Revolving Loan Borrowers solely for working capital purposes of Revolving Loan Borrowers; and WHEREAS, Borrowers and Guarantors have requested that Lender amend the Consolidated Net Worth financial covenant; and WHEREAS, Lender is willing to agree to the foregoing, subject to the terms and conditions contained herein; and WHEREAS, the parties to the Loan Agreement desire to enter into this Sixth Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate such amendments and agreements to the extent set forth herein, and subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following definitions: (i) "CoreStates" shall mean CoreStates Bank, N.A., a national banking association, and its successors and assigns. (ii) "December 1996 Intercompany Loans" shall mean the intercompany loans made, contemporaneously herewith, by Hanover to the Revolving Loan Borrowers, funded with the proceeds of the $10,000,000 Richemont Loan. (iii) "Richemont" shall mean Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg, and its successors and assigns. (iv) "$10,000,000 Richemont Loan" shall mean the loan in the original principal sum of $10,000,000 made by Richemont to Hanover, contemporaneously herewith. -2- 3 (v) "$10,000,000 Richemont Note" shall mean the Promissory Note, dated of even date herewith, by Hanover payable to Richemont in the original principal amount of $10,000,000 delivered to evidence the $10,000,000 Richemont Loan plus interest thereon. (b) Amendment to Definition. Section 1.23 of the Loan Agreement is hereby amended by deleting the proviso appearing at the end thereof and substituting the following proviso therefor, effective as of the date hereof: "; provided, however, that solely for purposes of calculating Consolidated Working Capital hereunder, the outstanding balance of the Revolving Loans and Term Loans and the outstanding balances of the $10,000,000 IMR Note and the $10,000,000 Richemont Note shall not be considered current liabilities." (c) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein that are defined in the Loan Agreement, shall have the respective meanings given to such terms in the Loan Agreement. 2. Use of Proceeds and Repayment of Richemont Loan. (a) Hanover agrees to use the proceeds of the $10,000,000 Richemont Loan solely to make the December 1996 Intercompany Loans to Revolving Loan Borrowers and Revolving Loan Borrowers agree to use the proceeds of such intercompany loans from Hanover solely for working capital purposes of Revolving Loan Borrowers. Hanover and Revolving Loan Borrowers shall arrange for the disbursement of the $10,000,000 Richemont Loan and the corresponding December 1996 Intercompany Loans by Hanover to Revolving Loan Borrowers, by wire transfer(s) directly from Richemont to Lender, for credit to the applicable Revolving Loan Borrowers' Revolving Loan accounts maintained by Lender. (b) Notwithstanding Section 6.5(b)(ii) of the Loan Agreement, Revolving Loan Borrowers may use the proceeds of Revolving Loans to make payments to Hanover, or directly to Richemont at the direction of Hanover, in respect of the valid intercompany Indebtedness owed to Hanover in respect of the December 1996 Intercompany Loans, consisting of principal and accrued interest, together with an amount equal to Hanover's reimbursement obligations to Richemont for bank fees, not to exceed $100,000 in the aggregate, incurred by Richemont in connection with the $10,000,000 Richemont Loan, and in addition thereto, an amount equal to the attorneys' fees required to be reimbursed or paid to Richemont incurred in connection with the making of the $10,000,000 Richemont Loan; provided, that, except -3- 4 for such amounts paid to Hanover and used to make payment to Richemont of such attorneys' fees, no such payment shall be made unless (i) prior to any such payment, each of the following Letter of Credit Accommodations has been cancelled and surrendered to Lender or CoreStates prior to any drawing under any of them (other than drawings under the letters of credit referred to in clauses (B) and/or (C) below that have been reinstated in accordance with the terms of such letters of credit), and replaced with substitute letters of credit in amounts and on terms satisfactory to Lender: (A) the Irrevocable Standby Letter of Credit No. 516262P, dated November 14, 1995, issued by CoreStates for the account of HDPI, Brawn and GBM in favor of NationsBank in the stated amount of $8,560,000, which, together with the NationsBank letter of credit referred to therein, must be replaced by a direct pay letter of credit in favor of Fleet National Bank, as the successor trustee of certain industrial development revenue bonds issued by the Littlestown Industrial Development Authority to finance a project for HDPI, (B) the Irrevocable Transferable Letter of Credit No. 516466P, dated December 27, 1995, in the initial stated amount of $10,145,833 issued by CoreStates for the account of HDPI, HDV and Gump's in favor of Norwest Bank Minnesota, N.A., as trustee, under the Series A Note Agreement, dated as of November 9, 1994, as amended, with respect to the issuance of the Series A Notes of Hanover in the original principal amount of $10,000,000, and (C) the Irrevocable Transferable Letter of Credit No. 516467P, dated December 27, 1995, in the initial stated amount of $10,145,833 issued by CoreStates for the account of HDPI, HDV and Gump's in favor of Norwest Bank Minnesota, N.A., as trustee, under the Series B Note Agreement, dated as of April 27, 1995, as amended, with respect to the issuance of the Series B Notes of Hanover in the original principal amount of $10,000,000 and (ii) no Event of Default or Incipient Default exists or has occurred and is continuing at the time of any such payment or would exist or occur as a result thereof. (c) Prior to the incurrence by any Borrower or Hanover of any reimbursement, indemnification or other obligations in favor of any issuer of any of the replacement letters of credit described in Section 2(b) hereof or in favor of Richemont as guarantor thereof or Hanover or any other person in connection therewith, Borrowers and Hanover shall first obtain Lender's prior written consent thereto. Lender's requirements for such consent shall include, but are not necessarily limited to (i) Lender's satisfaction with the terms and conditions of any such obligations and agreements evidencing such obligations, and (ii) the execution and delivery of a written subordination agreement in favor of Lender, by each of the obligees of such obligations, subordinating each such obligee's rights to payment of such obligations to the prior indefeasible payment and satisfaction in full of the Obligations of Borrowers to Lender, such written subordination agreement to have terms and provisions -4- 5 substantially in the form of those contained in the subordination agreement by Richemont delivered under Section 6(b)(ii) hereof and otherwise in form and substance satisfactory to Lender. 3. Consolidated Net Worth. Section 6.20 of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: "6.20 Consolidated Net Worth. Hanover shall, as at the end of each fiscal month, maintain Consolidated Net Worth, calculated on a consolidated basis for Hanover and its Subsidiaries, of at least Seventy Million Dollars ($70,000,000)." 4. Amendment Fee. In addition to all other fees, charges, interest and expenses payable by Borrowers to Lender under the Loan Agreement and the other Financing Agreements, HDPI shall pay to Lender a fee for entering into this Amendment in the amount of Fifty Thousand Dollars ($50,000), which amount is fully earned and payable as of the date hereof and may be charged directly to HDPI's loan account maintained by Lender in respect of the Revolving Loans. 5. Representations, Warranties and Covenants. Borrowers represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) This Amendment has been duly authorized, executed and delivered by all necessary action of each of the Borrowers and Guarantors which is a party hereto, and is in full force and effect, and the agreements and obligations of Borrowers and Guarantors, as the case may be, contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. (b) Neither the execution and delivery of the $10,000,000 Richemont Note, the making of the December 1996 Intercompany Loans, or any other agreements, documents or instruments in connection therewith, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof (i) has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in -5- 6 any respect, or (ii) does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instrument to which Hanover or any other Guarantor or any Borrower is a party or may be bound, or (iii) does or shall violate any provision of the Certificate of Incorporation or By-Laws of Hanover or any other Guarantor or any Borrower. (c) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (d) Within ten (10) days after the date hereof, Borrowers and Guarantors shall deliver to, or cause to be delivered to, Lender, in form and substance satisfactory to Lender, the original executed Subordination Agreement referred to in Section 6(b) hereof, together with (i) evidence of the adoption and subsistence of authorizing resolutions of Richemont approving the execution, delivery and performance by Richemont of such Subordination Agreement and (ii) an opinion of Luxembourg counsel to Richemont addressed to Lender with respect to the due authorization, execution, validity and enforceability of such Subordination Agreement, and as to such other matters as Lender shall reasonably require. (e) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. 6. Conditions Precedent. Concurrently with the execution hereof, and as a condition to the effectiveness of this Amendment and the agreement of Lender to the amendments set forth in this Amendment: (a) Lender shall have received an original of this Amendment, in form and substance satisfactory to Lender and its counsel, duly authorized, executed and delivered by Borrowers and Guarantors; (b) Lender shall have received, each in form and substance satisfactory to Lender, (i) a true and complete copy of the $10,000,000 Richemont Note and all agreements, documents and instruments relating thereto, and (ii) a written subordination agreement, dated of even date herewith, among Richemont, Hanover and Lender, pursuant to which, among other things, Richemont shall have subordinated its right to payment under the $10,000,000 Richemont Note to the prior indefeasible payment in full of all of the Obligations, to the extent provided therein, -6- 7 each duly authorized, executed and delivered by Hanover and Richemont; and (c) Lender shall have received, in form and substance satisfactory to Lender, a letter from Richemont's special New York counsel providing for (i) such counsel's attestation of the genuineness of the signatures appearing on the Subordination Agreement described in Section 6(b) hereof, as executed on behalf of Richemont and delivered to Lender via facsimile transmission and (ii) such counsel's undertaking to deliver, within ten (10) days after the date hereof, such original Subordination Agreement executed by Richemont, together with (A) evidence of the adoption and subsistence of authorizing resolutions of Richemont approving the execution, delivery and performance by Richemont of such Subordination Agreement and (B) an opinion of Luxembourg counsel to Richemont addressed to Lender with respect to the due authorization, execution, validity and enforceability of such Subordination Agreement, and as to such other matters as Lender shall reasonably require. 7. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. Except as expressly provided herein, no other changes or modifications to the Loan Agreement or any of the other Financing Agreements, or waivers or consents under any provisions of any of the foregoing, are intended or implied by this Amendment, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. 8. Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 9. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). -7- 8 10. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 11. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ Janet S. Last _________________________ Title: Vice President ______________________ HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] -8- 9 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- GUMP'S CORP. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- TWEEDS, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -9- 10 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER REALTY, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- THE AUSTAD COMPANY By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Senior Vice President -------------------------- AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien -------------------------- Title: Vice President -------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -10- 11 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -11- 12 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -12- 13 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] LWI RETAIL, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ -13- EX-10.25 11 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT 1 Exhibit 10.25 SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT, dated as of December 18, 1996, by and among CONGRESS FINANCIAL CORPORATION, a California corporation ("Lender"), HANOVER DIRECT PENNSYLVANIA, INC., a Pennsylvania corporation ("HDPI"), BRAWN OF CALIFORNIA, INC., a California corporation ("Brawn"), GUMP'S BY MAIL, INC., a Delaware corporation ("GBM"), GUMP'S CORP., a California corporation ("Gump's"), THE COMPANY STORE, INC., a Wisconsin corporation ("TCSI"), TWEEDS, INC., a Delaware corporation ("Tweeds"), LWI HOLDINGS, INC., a Delaware corporation ("LWI"), AEGIS CATALOG CORPORATION, a Delaware corporation ("Aegis"), HANOVER DIRECT VIRGINIA INC., a Delaware corporation ("HDV"), HANOVER REALTY, INC., a Virginia corporation ("Hanover Realty"), and THE AUSTAD COMPANY, a South Dakota corporation ("Austad"; and together with HDPI, Brawn, GBM, Gump's, TCSI, Tweeds, LWI, Aegis, HDV and Hanover Realty, each individually referred to herein as a "Borrower" and collectively, "Borrowers") and HANOVER DIRECT, INC., a Delaware corporation ("Hanover"), AEGIS RETAIL CORPORATION, a Delaware corporation, AEGIS SAFETY HOLDINGS, INC., a Delaware corporation, AEGIS VENTURES, INC., a Delaware corporation, AMERICAN DOWN & TEXTILE COMPANY, a Wisconsin corporation, BRAWN WHOLESALE CORP., a California corporation, THE COMPANY FACTORY, INC., a Wisconsin corporation, THE COMPANY OFFICE, INC., a Wisconsin corporation, COMPANY STORE HOLDINGS, INC., a Delaware corporation, D.M. ADVERTISING, INC., a New Jersey corporation, GUMP'S CATALOG, INC., a Delaware corporation, GUMP'S HOLDINGS, INC., a Delaware corporation, HANOVER CASUALS, INC., a Delaware corporation, HANOVER CATALOG HOLDINGS, INC., a Delaware corporation, HANOVER FINANCE CORPORATION, a Delaware corporation, HANOVER LIST MANAGEMENT INC., a New Jersey corporation, HANOVER VENTURES, INC., a Delaware corporation, LEICHTUNG OF MICHIGAN, INC., a Michigan corporation, LWI RETAIL, INC., an Ohio corporation, SCANDIA DOWN CORPORATION, a Delaware corporation, TWEEDS OF VERMONT, INC., a Delaware corporation, YORK FULFILLMENT COMPANY, INC., a Pennsylvania corporation, and AUSTAD HOLDINGS, INC., a Delaware corporation (each individually a "Guarantor" and collectively, "Guarantors"). W I T N E S S E T H: WHEREAS, Borrowers, Guarantors and Lender entered into the Loan and Security Agreement, dated November 14, 1995, as amended by the First Amendment to Loan and Security Agreement, dated February 22, 1996, the Second Amendment to Loan and Security Agreement, dated April 16, 1996, the Third Amendment to Loan and Security Agreement, dated May 24, 1996, the Fourth Amendment to Loan and Security Agreement, dated May 31, 1996, the Fifth Amendment to Loan and Security Agreement, dated September 11, 1996, and the Sixth Amendment to Loan and Security 2 Agreement, dated as of December 5, 1996 (the "Loan Agreement"), pursuant to which Lender has made loans and advances to Borrowers; and WHEREAS, pursuant to such financing arrangements, Lender has previously arranged for the issuance of the CoreStates Letters of Credit (as hereinafter defined); and WHEREAS, Swiss Bank (as hereinafter defined) is about to enter into the Swiss Bank Reimbursement Agreement (as hereinafter defined) with Hanover, pursuant to which Swiss Bank will issue the Swiss Bank Letters of Credit (as hereinafter defined) which will be substituted for the CoreStates Letters of Credit and the NationsBank Littlestown Letter of Credit (as hereinafter defined), each of which shall, concurrently with such substitution, be surrendered for cancellation; and WHEREAS, Richemont Finance S.A. is about to execute a Guaranty in favor of Swiss Bank of Hanover's reimbursement obligations to Swiss Bank and Hanover and Borrowers are about to enter into a reimbursement agreement in favor of Richemont Finance S.A. relating thereto; and WHEREAS, Lender is willing to agree to the foregoing, and certain additional amendments, subject to the terms and conditions contained herein; and WHEREAS, the parties to the Loan Agreement desire to enter into this Seventh Amendment to Loan and Security Agreement (this "Amendment") to evidence and effectuate such amendments and agreements to the extent set forth herein, and subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. (a) Additional Definitions. As used herein or in any of the other Financing Agreements, the following terms shall have the meanings given to them below, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following definitions: (i) "Corestates Letters of Credit" shall mean, individually and collectively, the CoreStates Series A Letter of Credit, the CoreStates Series B Letter of Credit and the CoreStates Littlestown Backup Letter of Credit. (ii) "CoreStates Littlestown Backup Letter -2- 3 of Credit" shall mean the Irrevocable Standby Letter of Credit No. 516262P, dated November 14, 1995, issued in the initial stated amount of $8,560,000 by CoreStates for the account of HDPI, Brawn and GBM, in favor of NationsBank. (iii) "CoreStates Series A Letter of Credit" shall mean the Irrevocable Transferable Letter of Credit No. 516466P, dated December 27, 1995, issued in the initial stated amount of $10,145,833 by CoreStates for the account of HDPI, HDV and Gump's, in favor of Norwest Bank Minnesota, N.A., as Trustee under the Series A Note Agreements. (iv) "CoreStates Series B Letter of Credit" shall mean the Irrevocable Transferable Letter of Credit No. 516467P, dated December 27, 1995, issued in the initial stated amount of $10,145,833 by CoreStates for the account of HDPI, HDV and Gump's, in favor of Norwest Bank Minnesota Bank, N.A., as Trustee under the Series B Note Agreements. (v) "Littlestown Bonds" shall mean the Variable Rate Demand Industrial Development Revenue Refunding Bonds, 1987 Series (Hanover House Industries, Inc. Project), issued on behalf of Hanover House Industries Inc., now known as Hanover Direct Pennsylvania, Inc., in the original principal amount of $8,000,000, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (vi) "Littlestown IDB Agreements" shall mean, collectively, the Indenture of Trust, dated as of September 1, 1987, presently between the Littlestown Industrial Development Authority and Fleet National Bank, as successor Trustee in connection with the Littlestown Bonds, and all agreements, documents and instruments at any time executed and/or delivered in connection therewith, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (vii) "NationsBank Littlestown Letter of Credit" shall mean the letter of credit no. 41055, dated November 2, 1994, issued in the initial stated amount of $8,560,000 by NationsBank for the account of Hanover Direct Pennsylvania, Inc., in favor of Fleet National Bank, as Trustee under the Littlestown IDB Agreements. (viii) "Richemont" shall mean Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg, and its successors and assigns. (ix) "Richemont Guaranty" shall mean the Guaranty, dated of even date herewith, by Richemont in favor of Swiss Bank with respect to the obligations of Hanover to Swiss -3- 4 Bank, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (x) "Richemont Reimbursement Agreement" shall mean the Hanover Indemnity Agreement, dated of even date herewith, by and among Hanover, Borrowers and Richemont pursuant to which Hanover and Borrowers have agreed to reimburse Richemont for amounts that are paid by Richemont in connection with the Swiss Bank Letters of Credit and/or the Richemont Guaranty, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xi) "Series A Note Agreements" shall mean, individually and collectively, the Series A Note Agreement, dated as of November 9, 1994, presently between Hanover and Norwest Bank Minnesota, N.A., as Trustee, with respect to the issuance and sale of the Series A Notes, and all agreements, documents and instruments at any time executed and/or delivered by Hanover or any related parties in connection therewith, including, without limitation, the Second Supplemental Series A Note Agreement, dated as of December 18, 1996, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xii) "Series A Notes" shall mean the Flexible Term Notes, Series A, originally issued on November 9, 1994, by Hanover in the original aggregate principal amount of $10,000,000, as replaced or modified through the date hereof pursuant to the Series A Note Agreements, and as the same may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xiii) "Series B Note Agreements" shall mean, individually and collectively, the Series B Note Agreement, dated as of April 27, 1995, presently between Hanover and Norwest Bank Minnesota, N.A., as Trustee, with respect to the issuance and sale of the Series B Notes, and all other agreements, documents or instruments at any time executed and/or delivered in connection therewith, including, without limitation, the Second Supplemental Series B Note Agreement, dated as of December 18, 1996, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xiv) "Series B Notes" shall mean the Flexible Term Notes, Series B, originally issued on April 27, 1995, by Hanover in the original aggregate principal amount of $10,000,000, as replaced or modified through the date hereof pursuant to the Series B Note Agreements, and as the same may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xv) "Swiss Bank" shall mean, individually -4- 5 and collectively, Swiss Bank Corporation, a banking corporation organized under the laws of Switzerland, acting through its New York Branch, and any other issuer of a letter of credit or guaranty that hereafter replaces or substitutes for any of the Swiss Bank Letters of Credit, and their respective successors and assigns. (xvi) "Swiss Bank Agreements" shall mean, individually and collectively, (A) the Swiss Bank Reimbursement Agreement, (B) the Swiss Bank Letters of Credit, (C) the rights of Swiss Bank under the Series A Note Agreements and any Series A Notes at any time held by or for Swiss Bank, (D) the rights of Swiss Bank under the Series B Note Agreements and any Series B Notes at any time held by or for Swiss Bank, (E) the rights of Swiss Bank under the Littlestown IDB Agreements and any Littlestown Bonds at any time held by or for Swiss Bank and (F) all agreements, documents and instruments at any time executed and/or delivered by Debtor or any other person to, with or in favor of Swiss Bank in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xvii) "Swiss Bank Letters of Credit" shall mean, collectively, the Swiss Bank Littlestown Letter of Credit, the Swiss Bank Series A Letter of Credit and the Swiss Bank Series B Letter of Credit, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xviii) "Swiss Bank Littlestown Letter of Credit" shall mean the Letter of Credit No. S567171, dated December 18, 1996, issued by Swiss Bank for the account of Hanover Direct Pennsylvania, Inc. in favor of Fleet National Bank, as Trustee under the Littlestown IDB Agreements, in the initial stated amount of $8,560,000, delivered in substitution for the NationsBank Littlestown Letter of Credit and the CoreStates Littlestown Backup Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xix) "Swiss Bank Reimbursement Agreement" shall mean the Reimbursement Agreement, dated of even date herewith, by and between Hanover and Swiss Bank with respect to the Swiss Bank Letters of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xx) "Swiss Bank Series A Letter of Credit" shall mean the Letter of Credit No. S567169, dated December 18, 1996, issued by Swiss Bank for the account of Hanover in the initial stated amount of $9,638,541, delivered in substitution for the CoreStates Series A Letter of Credit, as the same now -5- 6 exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (xxi) "Swiss Bank Series B Letter of Credit" shall mean the Letter of Credit No. S567170, dated December 18, 1996, issued by Swiss Bank for the account of Hanover in the initial stated amount of $9,638,541, delivered in substitution for the CoreStates Series B Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. (b) Interpretation. For purposes of this Amendment, unless otherwise defined herein, all capitalized terms used herein that are defined in the Loan Agreement, shall have the respective meanings given to such terms in the Loan Agreement. 2. Indebtedness. Section 6.3 of the Loan Agreement is hereby amended by deleting the word "and" appearing at the end of Section 6.3(f), replacing the period with a semicolon and the word "and" appearing at the end of Section 6.3(g) and adding a new Section 6.3(h) immediately thereafter, as follows: "(h) unsecured Indebtedness of Borrowers to Richemont evidenced by the Richemont Reimbursement Agreement, which Indebtedness and related obligations are subject to, and subordinated in right of payment to, the prior right of Lender to receive the prior indefeasible payment in full of the Obligations in accordance with the terms and conditions of the written subordination agreement, dated December 18, 1996, between Lender and Richemont; provided, that, (i) Borrowers and Hanover shall not, directly or indirectly, make any payments or prepayments of principal or interest in respect of such Indebtedness, or any expenses related thereto, other than a payment to Richemont consisting of expenses and attorneys' fees, not to exceed the aggregate amount of $45,000, required to be reimbursed to Richemont by Borrowers or Hanover incurred in connection with the issuance of the Swiss Bank Letters of Credit, plus the fee in the sum of $1,391,854.10 payable to Richemont pursuant to Section 6 of the Richemont Reimbursement Agreement as in effect on the date of execution and delivery thereof, plus indemnification obligations when due and payable to the extent permitted under such written subordination agreement between Lender and Richemont, (ii) Borrowers and Hanover shall not, directly or indirectly, (A) amend, modify, alter or change the terms of the arrangements or any agreements with respect to such Indebtedness, or (B) redeem, retire, defease, purchase or otherwise acquire any such Indebtedness or set aside or otherwise deposit or invest any sums for such purpose, other than through the exercise by Richemont of the right to convert all or any part of such Indebtedness -6- 7 to common stock in accordance with the terms and conditions of the Richemont Reimbursement Agreement as in effect on the date of execution and delivery thereof, and (iii) Hanover and Borrowers shall furnish to Lender all notices, demands or other materials in connection with such Indebtedness promptly after the receipt thereof by them or currently with the sending thereof by them or on their behalf, as the case may be." 3. Reimbursement Obligations to Swiss Bank. (a) Hanover has executed and delivered, concurrently herewith, the Swiss Bank Reimbursement Agreement and the other Swiss Bank Agreements in connection with the issuance of the Swiss Bank Letters of Credit. The Indebtedness and related obligations of Hanover to Swiss Bank under the Swiss Bank Agreements are subject to, and subordinated in right of payment to, the prior right of Lender to receive the prior indefeasible payment in full of the Obligations in accordance with the terms and conditions of the written subordination agreement, dated of even date herewith, between Lender and Swiss Bank. (b) Revolving Loan Borrowers may use the proceeds of Revolving Loans to repay valid intercompany Indebtedness to Hanover, such repayments to be concurrently used by Hanover to make payments to Swiss Bank of bank fees and other expenses set forth in Sections 2.03(a) through (f) of the Swiss Bank Reimbursement Agreement as in effect on the date hereof, when due and payable in accordance with such provisions, but not to exceed the aggregate amount of $47,500 in respect of such bank fees and expenses accrued or incurred through the date hereof; provided that, in the case of intercompany repayments to be used to pay those fees or expenses accrued or incurred after the date hereof, no Event of Default or Incipient Default exists or has occurred and is continuing at the time of any such payment or would exist or occur as a result thereof. (c) Revolving Loan Borrowers may use the proceeds of Revolving Loans to repay valid intercompany Indebtedness to Hanover, such repayments to be concurrently used by Hanover to make payments of Hanover's reimbursement obligations owed to Swiss Bank under the Swiss Bank Reimbursement Agreement in respect of drawings paid under the Swiss Bank Letters of Credit for (i) regularly scheduled monthly payments of interest when due under the Series A Note Agreements, Series B Note Agreements and Littlestown IDB Agreements as each is in effect on the date hereof and (ii) regularly scheduled reductions of principal due and payable on October 1, 1997 under the Series A Notes and Series B Notes, each such reduction to be in the amount of $500,000; provided, that, no Event of Default or Incipient Default exists or has occurred and is continuing at the time of any such payment or would exist or occur as a result thereof. -7- 8 (d) In the event Hanover wishes to arrange for alternative letters of credit to replace the Swiss Bank Letters of Credit in connection with which any of the Borrowers or Guarantors will incur any obligations (whether absolute or contingent), liabilities or indebtedness, Borrowers and Guarantors may do so; provided, that, (i) Borrowers and Guarantors provide Lender at least thirty (30) days' prior written notice of such arrangements, (ii) the bank providing such replacement letters of credit is reasonably acceptable to Lender, (iii) such obligations (whether absolute or contingent), liabilities and indebtedness incurred by Borrowers or Guarantors are on terms and conditions satisfactory to Lender, (iv) Lender shall have received one or more written subordination agreements, in form and substance satisfactory to Lender, pursuant to which, among other things, such bank and each other person who does or who may hold any liabilities, obligations (whether absolute or contingent) or indebtedness of Borrowers or Guarantors in connection with such replacement letters of credit, agree to subordinate their right to payment of such liabilities, obligations (whether absolute or contingent) and indebtedness to the prior, indefeasible payment and satisfaction in full of all of the Obligations, and (v) Lender shall have received, in form and substance satisfactory to Lender, a Secretary's Certificate of such bank and each such other person evidencing the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by such bank and each such other person of the written subordination agreements required in the immediately preceding clause (iv) hereof, together with opinions of counsel to such bank and each such other person with respect thereto, addressed to Lender, as Lender shall reasonably require. 4. L/C Cancellation Availability. Lender agrees that, for the period (the "Specified Period") commencing on the date hereof and ending on the close of business on the earlier of (i) December 28, 1996 or (ii) the day following the day upon which Lender indicates Revolving Loans are available, subject to the lending formulas and the other terms and conditions of the Loan Agreement, in the aggregate amount of the availability of Revolving Loans resulting from the cancellation of the CoreStates Letters of Credit (such availability, the "L/C Cancellation Availability"), Lender agrees that it will not declare an Event of Default based solely on states of fact or occurrences actually known by Lender as of the execution and delivery of this -8- 9 Amendment; provided, however, that (x) the foregoing shall not constitute a waiver of any existing Event of Default or Incipient Default, (y) the L/C Cancellation Availability shall at all times be subject to the lending formulas and the other terms and conditions of the Loan Agreement and (z) nothing herein contained shall in any manner limit or impair (1) the exercise by Lender during the Specified Period of any of its rights or remedies in respect of any existing Event of Default or Incipient Default not actually known by Lender as of the execution and delivery of this Amendment or that occurs or arises thereafter, or (2) the exercise by Lender after the Specified Period of any or all of its default rights and remedies. As used herein, the term "actually known by Lender" shall mean facts within the actual knowledge of an officer of Lender having primary responsibility for the administration of the Loans, without regard to any knowledge that would be acquired through inquiry, review or investigation of any kind whatsoever. 5. Elimination of Certain Revolving Loan Availability Reserve. Provided that Sears Shop at Home Services, Inc. ("Sears") has agreed in writing, in form and substance satisfactory to Lender, to delete in its entirety paragraph 3 of that certain letter agreement, dated November 14, 1995, by and among Lender, Sears and Hanover Ventures, thereby eliminating the subordination by Lender of up to $2,000,000 of the Obligations of Hanover Ventures, then the Loan Agreement shall be deemed amended by deleting Section 2.6(c) in its entirety and adding the following: "(c) [INTENTIONALLY DELETED]." 6. Representations and Warranties. Borrowers represent, warrant and covenant with and to Lender as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a condition of the effectiveness of this Amendment and a continuing condition of the making or providing of any Revolving Loans or Letter of Credit Accommodations by Lender to Borrowers: (a) This Amendment has been duly authorized, executed and delivered by all necessary action of each of the Borrowers and Guarantors which is a party hereto, and is in full force and effect, and the agreements and obligations of Borrowers and Guarantors, as the case may be, contained herein constitute legal, valid and binding obligations of Borrowers and Guarantors, as the case may be, enforceable against them in accordance with their terms. (b) The Swiss Bank Series A Letter of Credit has been duly issued, delivered to and accepted by the Series A Note Trustee in substitution of the CoreStates Series A Letter of Credit, the Swiss Bank Series B Letter of Credit has been duly issued, delivered to and accepted by the Series B Note Trustee in substitution of the CoreStates Series B Letter of Credit, and the Swiss Bank Littlestown Letter of Credit has been duly issued, delivered to and accepted by the Littlestown Trustee in substitution of the NationsBank Littlestown Letter of Credits. -9- 10 (c) Borrowers and Guarantors have delivered, or caused to be delivered, to Lender true, correct and complete copies of the Swiss Bank Reimbursement Agreements and the Richemont Reimbursement Agreement and any other agreements, documents, or instruments executed and delivered in connection therewith. (d) Neither the execution, delivery or performance of the Swiss Bank Agreements nor the issuance by Swiss Bank of the letters of credit contemplated thereby nor the execution, delivery or performance of the Richemont Reimbursement Agreement, nor any other agreements, documents or instruments in connection therewith, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof (i) has violated or shall violate any Federal or State securities laws or any other law or regulation or any order or decree of any court or governmental instrumentality in any respect, or (ii) does, or shall conflict with or result in the breach of, or constitute a default in any respect under any mortgage, deed of trust, security agreement, agreement or instrument to which any Guarantor or any Borrower is a party or may be bound, or (iii) does or shall violate any provision of the Certificate of Incorporation or By-Laws of any Borrower or any Guarantor. (e) All necessary amendments, supplements and agreements have been executed and delivered, and all necessary actions required by the Series A Note Agreements, the Series B note Agreements and the Littlestown IDB Agreements have been taken in accordance with the Series A Note Agreements, the Series B Note Agreements and the Littlestown IDB Agreements, respectively, and all notices, supplements and disclosure documents required to be delivered to any trustee or other person under the Series A Note Agreements, the Series B Note Agreements and the Littlestown IDB Agreements in connection with the transactions contemplated by this Amendment, have been timely delivered. (f) All of the representations and warranties set forth in the Loan Agreement as amended hereby, and the other Financing Agreements, are true and correct in all material respects, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. (g) After giving effect to the provisions of this Amendment, no Event of Default or Incipient Default exists or has occurred and is continuing. 7. Conditions Precedent. Concurrently with the execution hereof, and as a condition to the effectiveness of this Amendment and the agreement of Lender to the modifications, -10- 11 waivers and amendments set forth in this Amendment: (a) Lender shall have received an original of this Amendment, in form and substance satisfactory to Lender, duly authorized, executed and delivered by Borrowers and Guarantors; (b) Lender shall have received, in form and substance satisfactory to Lender, evidence that each of the Swiss Bank Letters of Credit has been duly issued by Swiss Bank and delivered to and accepted by the respective beneficiaries thereof. (c) Lender shall have received, each in form and substance satisfactory to Lender, each of the following: (i) a written subordination agreement, dated of even date herewith, by and between Swiss Bank and Lender, duly authorized, executed and delivered by Swiss Bank, Borrowers and Guarantors; (ii) a written subordination agreement, dated of even date herewith, by and between Richemont and Lender, duly authorized, executed and delivered by Richemont, Borrowers and Guarantors; (iii) letter, dated of even date herewith, from NationsBank in favor of CoreStates authorizing and requesting the cancellation of the CoreStates Littlestown Backup Letter of Credit, including such indemnity as CoreStates shall require in lieu of surrender of the original CoreStates Littlestown Backup Letter of Credit, and any amendments thereto; (iv) letter, dated of even date herewith, from Norwest Bank Minnesota, N.A., as Trustee under the Series A Notes and the Series B Notes, in favor of CoreStates surrendering for cancellation the CoreStates Series A Letter of Credit, together with the original CoreStates Series A Letter of Credit, and any amendments thereto; (v) letter, dated of even date herewith, from Norwest Bank Minnesota, N.A., as Trustee under the Series A Notes and the Series B Notes, in favor of CoreStates surrendering for cancellation the CoreStates Series B Letter of Credit, together with the original CoreStates Series B Letter of Credit and any amendments thereto; and (vi) evidence that the following have been delivered to NationsBank: letter, dated of even date herewith, from the Littlestown IDB Trustee in favor of NationsBank surrendering for cancellation the NationsBank Littlestown Letter of Credit, together with the original NationsBank Littlestown Letter of Credit; -11- 12 (d) Lender shall have received, in form and substance satisfactory to Lender, written evidence of the adoption and subsistence of corporate resolutions approving the execution, delivery and performance by Richemont of the written subordination agreement required under Section 7(c)(ii) hereof, together with opinions of counsel to Richemont with respect thereto, addressed to Lender, as Lender shall reasonably require; and (e) each of Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a true and correct copy of any consent, waiver or approval to or of this Amendment, which any Borrower or Guarantor is required to obtain from any other Person (if any) and each such consent, approval or waiver shall be in a form reasonably acceptable to Lender. 8. Effect of this Amendment. This Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof, and supersedes all prior oral or written communications, memoranda, proposals, negotiations, discussions, term sheets and commitments with respect to the subject matter hereof. No waivers of Events of Default or Incipient Defaults and, except as expressly provided herein, no waivers and no modifications to the Loan Agreement or any of the other Financing Agreements, or consents under any provisions of any of the foregoing, are intended or implied by this Amendment, and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent that any provision of the Loan Agreement or any of the other Financing Agreements conflicts with any provision of this Amendment, the provision of this Amendment shall control. 9. Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Lender to effectuate the provisions and purposes of this Amendment. 10. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York (without giving effect to principles of conflicts of laws). 11. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 12. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or -12- 13 account for more than one counterpart thereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the day and year first written. CONGRESS FINANCIAL CORPORATION By: /s/ John T. Garvey _________________________ Title: Assistant Vice President ______________________ HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] -13- 14 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ GUMP'S CORP. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ TWEEDS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ [SIGNATURES CONTINUE ON NEXT PAGE] -14- 15 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ HANOVER REALTY, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ THE AUSTAD COMPANY By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ By their signatures below, the undersigned Guarantors acknowledge and agree to be bound by the applicable provisions of this Amendment: HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Senior Vice President _________________________ AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -15- 16 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -16- 17 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -17- 18 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LWI RETAIL, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON NEXT PAGE] -18- 19 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ---------------------------- Title: Vice President ------------------------- -19- EX-10.27 12 LONG-TERM INCENTIVE PLAN FOR RAKESH K. KAUL 1 EXHIBIT 10.27 LONG-TERM INCENTIVE PLAN FOR RAKESH K. KAUL 1. PURPOSE. The purpose of this Long-Term Incentive Plan for Rakesh K. Kaul (the "Plan") is to promote an alignment of the interests of Rakesh K. Kaul ("Kaul"), who will have a significant impact on the long-term success of Hanover Direct, Inc. (the "Company"), with the interests of the Company and its shareholders by affording Kaul a proprietary interest in the Company's growth while providing Kaul with an incentive to make a personal financial investment in the Company and to remain in the Company's employ. 2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Committee"). The Committee shall consist of two or more members and shall be constituted in such a manner as to satisfy the requirements of applicable law, the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 or any successor rule, and the provisions of Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986, as amended. The Committee shall have full power and authority to grant awards hereunder and to administer and interpret the Plan and to adopt such rules, regulations, agreements, guidelines, and instruments for the administration of the Plan as it deems necessary or advisable. 3. ELIGIBILITY. Kaul shall be the only person eligible to participate in the Plan. 4. THE SHARES. The shares that may be purchased by Kaul under the Plan shall not exceed an aggregate of 7,000,000 shares (subject to adjustment pursuant to Section 6) of common stock of the Company, par value $.66-2/3 per share ("Common Stock"). Except in the case of the NAR Options (as hereinafter defined), such shares of Common Stock shall be set aside out of the authorized but unissued shares of Common Stock not reserved for any other purpose or out of previously issued shares acquired by the Company and held in its treasury. The shares of Common Stock subject to the NAR Options are shares owned by NAR Group Limited. 5. AWARDS. The following awards shall be granted under the Plan: a. Tandem Stock Purchase Right. The right to purchase 1,000,000 shares of Common Stock at a price equal to their fair market value. For purposes of the Plan, fair market value shall mean the average of the high and 2 low per-share sale prices of the Common Stock on the American Stock Exchange, as determined by the Committee, on the date of purchase. Twenty percent of the purchase price for such shares shall be paid in cash, and 80% shall be financed with a nonrecourse Note in substantially the form set forth in APPENDIX A hereto, secured by a pledge of the shares of Common Stock acquired in such purchase pursuant to a Pledge Agreement in substantially the form set forth in APPENDIX B hereto. The Company shall pay the Executive on before the date of such purchase a sign-on bonus equal to the portion of the purchase price required to be paid in cash, and shall pay the Executive, on or before each due date during the Term of any payment of principal and/or interest on the Note, a bonus equal to the amount of such principal and/or interest then due. b. Tandem Option. An option (the "Tandem Option") to purchase 2,000,000 shares of Common Stock, the terms of which option shall be as set forth in APPENDIX C. The granting of this option shall be conditioned upon Kaul's purchase of 1,000,000 shares of Common Stock pursuant to his exercise of the tandem stock purchase right described in the preceding paragraph. c. Performance Year Option. An option (the "Performance Year Option") to purchase 1,000,000 shares of Common Stock, the terms of which option shall be as set forth in APPENDIX D. d. Closing Price Option. An option (the "Closing Price Option") to purchase 2,000,000 shares of Common Stock, the terms of which option shall be as set forth in APPENDIX E. e. NAR Options. Four options (the "NAR Options") for the purchase of 250,000 shares of Common Stock each, to be granted by NAR Group Limited. The terms of such options shall be as set forth in APPENDICES F-1 through F-4, respectively. All awards under the Plan shall be granted on or before September 1, 1996. 6. ADJUSTMENT OF AND CHANGES IN SHARES. In the event of any change in the outstanding Common Stock by reason of any stock dividend, stock split, combination of shares, recapitalization, or other similar change in the capital stock of the Company, or in the event of the merger or consolidation of the Company into or with any other corporation or the reorganization of the Company, the number of shares covered by each outstanding award granted under the Plan, the number of shares as to which an option is vested under the Plan, the option price per share of each option granted under the Plan, the total number of shares for which awards may be granted under the Plan, and the maximum number of shares for which options may be granted to Kaul, shall be appropriately adjusted by the Committee to preserve the -2- 3 value of the award. If, before the granting of the Tandem Stock Purchase Right, the Tandem Option, or the NAR Options, respectively, a distribution is made on the shares of Common Stock of rights or warrants to purchase securities of the Company, there shall be added to the shares subject to such stock purchase right or option ("Award Shares") the number and kind of securities of the Company which would have been issued on the exercise of the rights or warrants that would have been distributed with respect to such number of Award Shares. 7. EFFECTIVENESS OF PLAN. The Plan shall be effective as of the date of its adoption by the Committee, subject to approval thereof at a meeting of shareholders by the holders of a majority of the shares of Common Stock present and entitled to vote at the meeting. In the event the shareholders fail to approve the Plan, any awards shall be rescinded and all actions taken hereunder shall be null and void. The Plan shall terminate on December 31, 1996. Any option outstanding at the time of such termination, whether or not vested, shall remain in effect in accordance with its terms and those of the Plan. -3- EX-10.40 13 SUBORDINATION AGREEMENT, DATED DECEMBER 18, 1996 1 EXHIBIT 10.40 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT ("Subordination Agreement"), dated as of December 18, 1996, is by and between CONGRESS FINANCIAL CORPORATION, a California corporation ("Senior Creditor", as hereinafter further defined), and SWISS BANK CORPORATION, a banking corporation organized under the laws of Switzerland acting through its New York Branch ("Junior Creditor", as hereinafter further defined). Senior Creditor and Junior Creditor are sometimes individually referred to herein as "Creditor" and collectively as "Creditors." W I T N E S S E T H: WHEREAS, Senior Creditor has entered into financing arrangements with Hanover Direct, Inc. ("Hanover", as hereinafter further defined) and certain of its subsidiaries, pursuant to which Senior Creditor has, upon certain terms and conditions, made loans and provided other financial accommodations to certain subsidiaries of Hanover, guaranteed by Hanover and certain subsidiaries of Hanover, secured by substantially all of the assets and properties of Hanover and of such borrower subsidiaries and guarantor subsidiaries of Hanover (such subsidiaries, together with Hanover, individually and collectively, "Debtor", as hereinafter further defined); and WHEREAS, pursuant to such financing arrangements, Senior Creditor has previously arranged for the issuance of the CoreStates Letters of Credit (as hereinafter defined); and WHEREAS, Junior Creditor is about to enter into the Swiss Bank Reimbursement Agreement (as hereinafter defined) with Hanover, pursuant to which Junior Creditor will issue the Swiss Bank Letters of Credit (as hereinafter defined) which will be substituted for the CoreStates Letters of Credit and the NationsBank Littlestown Letter of Credit (as hereinafter defined), each of which shall, concurrently with such substitution, be surrendered for cancellation or otherwise cancelled; and WHEREAS, in order to induce Senior Creditor to continue the financing arrangements with Hanover and certain subsidiaries of Hanover, Junior Creditor has agreed to the subordination in favor of Senior Creditor as provided herein of its right to payment of the existing and future obligations of Debtor to Junior Creditor arising in connection with or relating to the Swiss Bank Letters of Credit, and related matters as set forth below; NOW THEREFORE, in consideration of the mutual benefits accruing to Creditors hereunder and other good and valuable 2 consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: 1. DEFINITIONS As used above and in this Subordination Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Agreements" shall mean, individually and collectively, the Senior Creditor Agreements and the Junior Creditor Agreements. 1.2 "CoreStates" shall mean CoreStates Bank, N.A., a national banking association, and its successors and assigns. 1.3 "Corestates Letters of Credit" shall mean, individually and collectively, the CoreStates Series A Letter of Credit, the CoreStates Series B Letter of Credit and the CoreStates Littlestown Backup Letter of Credit. 1.4 "CoreStates Littlestown Backup Letter of Credit" shall mean the Irrevocable Standby Letter of Credit No. 516262P, dated November 14, 1995, issued in the initial stated amount of $8,560,000 by CoreStates for the account of certain subsidiaries of Debtor, in favor of NationsBank, National Association. 1.5 "CoreStates Series A Letter of Credit" shall mean the Irrevocable Transferable Letter of Credit No. 516466P, dated December 27, 1995, issued in the initial stated amount of $10,145,833 by CoreStates for the account of certain subsidiaries of Debtor, in favor of Norwest Bank Minnesota, N.A., as Trustee under the Series A Note Agreements. 1.6 "CoreStates Series B Letter of Credit" shall mean the Irrevocable Transferable Letter of Credit No. 516467P, dated December 27, 1995, issued in the initial stated amount of $10,145,833 by CoreStates for the account of certain subsidiaries of Debtor in favor of Norwest Bank Minnesota Bank, N.A., as Trustee under the Series B Note Agreements. 1.7 "Creditors" shall mean, individually and collectively, Senior Creditor and Junior Creditor and their respective successors and assigns. 1.8 "Debtor" shall mean, individually and collectively, Hanover and each of its existing and future subsidiaries who are or become parties (as borrower or guarantor or who are or become otherwise obligated for all or part of the Senior Debt) to the Senior Creditor Agreements, and their respective successors and assigns, including, without limitation, a receiver, trustee, or debtor-in-possession on behalf of any such person or on behalf of any such successor or assign. - 2 - 3 1.9 "Hanover" shall mean Hanover Direct, Inc., a Delaware corporation and its successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of such person or on behalf of any such successor or assign. 1.10 "Junior Creditor" shall mean Swiss Bank Corporation, a banking corporation organized under the laws of Switzerland acting through its New York Branch, and its successors and assigns. 1.11 "Junior Creditor Agreements" shall mean, individually and collectively, (a) The Swiss Bank Reimbursement Agreement, (b) the Swiss Bank Letters of Credit, (c) the rights of Junior Creditor under the Series A Note Agreements and any Series A Notes at any time held by or for Junior Creditor, (d) the rights of Junior Creditor under the Series B Note Agreements and any Series B Notes at any time held by or for Junior Creditor, (e) the rights of Junior Creditor under the Littlestown IDB Agreements and any Littlestown Bonds at any time held by or for Junior Creditor, and (f) all agreements, documents and instruments at any time executed and/or delivered by Debtor or any other person to, with or in favor of Junior Creditor in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. The Junior Creditor Agreements shall not, however, mean or include the Richemont Guaranty. 1.12 "Junior Debt" shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by Debtor to Junior Creditor, including principal, interest, charges, fees, premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under or evidenced by or in connection with the Junior Creditor Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Junior Creditor Agreements or after the commencement of any case with respect to Debtor under the U.S. Bankruptcy Code or any similar statute (and including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowable in whole or in part, in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly, or by way of subrogation, contribution, reimbursement, indemnification, exoneration or otherwise, or howsoever acquired by Junior Creditor. The Junior Debt shall not, however, mean or include any of the obligations, liabilities and indebtedness of Richemont to Junior Creditor pursuant to the Richemont Guaranty. - 3 - 4 1.13 "Littlestown Bonds" shall mean the Variable Rate Demand Industrial Development Revenue Refunding Bonds, 1987 Series (Hanover House Industries, Inc. Project), issued on behalf of Hanover House Industries Inc., now known as Hanover Direct Pennsylvania, Inc., in the original principal amount of $8,000,000, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.14 "Littlestown IDB Agreements" shall mean, collectively, the Indenture of Trust, dated as of September 1, 1987, presently between the Littlestown Industrial Development Authority and Fleet National Bank, as successor Trustee in connection with the Littlestown Bonds, and all agreements, documents and instruments at any time executed and/or delivered in connection therewith, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.15 "NationsBank Littlestown Letter of Credit" shall mean the letter of credit no. 41055, dated November 2 ,1994, issued in the initial stated amount of $8,560,000 by NationsBank for the account of Hanover Direct Pennsylvania, Inc., in favor of Fleet National Bank, as Trustee under the Littlestown IDB Agreements. 1.16 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock company, trust, joint venture, limited liability company, limited liability partnership, or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.17 "Remarketing Proceeds" shall have the meaning set forth in Section 2.2(c) hereof. 1.18 "Richemont" shall mean Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg, and its successors and assigns. 1.19 "Richemont Guaranty" shall mean the Guaranty, dated of even date herewith, by Richemont in favor of Junior Creditor with respect to the obligations of Hanover to Junior Creditor, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.20 "Senior Creditor" shall mean Congress Financial Corporation, a California corporation, and its successors and assigns. 1.21 "Senior Creditor Agreements" shall mean, individually and collectively, the Loan and Security Agreement, dated November 14, 1995, by and among Senior Creditor, Hanover and - 4 - 5 certain subsidiaries of Hanover, as amended (the "Loan Agreement"), the Guarantee and Waivers, each dated November 14, 1995, by Hanover and certain of its subsidiaries in favor of Senior Creditor, the General Security Agreements, each dated November 14, 1995, by Hanover and certain of its subsidiaries in favor of Senior Creditor and all agreements, documents and instruments at any time executed and/or delivered by Debtor or any other person to, with or in favor of Senior Creditor in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.22 "Senior Debt" shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by Debtor to Senior Creditor and/or its affiliates, or participants, including principal, interest, charges, fees, premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Senior Creditor Agreements or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Senior Creditor Agreements or after the commencement of any case with respect to Debtor under the U.S. Bankruptcy Code or any similar statute (and including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowable either in whole or in part, in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly, or by way of subrogation, contribution, reimbursement, indemnification, exoneration or otherwise, or howsoever acquired by Senior Creditor. 1.23 "Senior Debt Default" shall mean any "Event of Default" or "Incipient Default" as such terms are defined in the Loan Agreement referred to in the definition of Senior Creditor Agreements. 1.24 "Series A Note Agreements" shall mean, individually and collectively, the Series A Note Agreement, dated as of November 9, 1994, presently between Hanover and Norwest Bank Minnesota, N.A., as Trustee, with respect to the issuance and sale of the Series A Notes, and all agreements, documents and instruments at any time executed and/or delivered by Hanover or any related parties in connection therewith, including, without limitation, the Second Supplemental Series A Note Agreement, dated as of December 18, 1996, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. - 5 - 6 1.25 "Series A Notes" shall mean the Flexible Term Notes, Series A, originally issued on November 9, 1994, by Hanover in the original aggregate principal amount of $10,000,000, as replaced or modified through the date hereof pursuant to the Series A Note Agreements, and as the same may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.26 "Series B Note Agreements" shall mean, individually and collectively, the Series B Note Agreement, dated as of April 27, 1995, presently between Hanover and Norwest Bank Minnesota, N.A., as Trustee, with respect to the issuance and sale of the Series B Notes, and all other agreements, documents or instruments at any time executed and/or delivered in connection therewith, including, without limitation, the Second Supplemental Series B Note Agreement, dated as of December 18, 1996, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.27 "Series B Notes" shall mean the Flexible Term Notes, Series B, originally issued on April 27, 1995, by Hanover in the original aggregate principal amount of $10,000,000, as replaced or modified through the date hereof pursuant to the Series B Note Agreements, and as the same may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.28 "Swiss Bank Letters of Credit" shall mean, collectively, the Swiss Bank Littlestown Letter of Credit, the Swiss Bank Series A Letter of Credit and the Swiss Bank Series B Letter of Credit, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.29 "Swiss Bank Littlestown Letter of Credit" shall mean the Letter of Credit No. S567171 dated December 18, 1996, issued by Swiss Bank for the account of Hanover Direct Pennsylvania, Inc. in favor of Fleet National Bank, as Trustee under the Littlestown IDB Agreements, in the initial stated amount of $8,560,000, delivered in substitution for the NationsBank Littlestown Letter of Credit and the CoreStates Littlestown Backup Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.30 "Swiss Bank Reimbursement Agreement" shall mean the Reimbursement Agreement, dated as of December 18, 1996, by and between Hanover and Junior Creditor with respect to the Swiss Bank Letters of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. - 6 - 7 1.31 "Swiss Bank Series A Letter of Credit" shall mean the Letter of Credit No. S567169 dated December 18, 1996, issued by Swiss Bank for the account of Hanover in the initial stated amount of $9,638,541, delivered in substitution for the CoreStates Series A Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.32 "Swiss Bank Series B Letter of Credit" shall mean the Letter of Credit No. S567170, dated December 18, 1996, issued by Swiss Bank for the account of Hanover in the initial stated amount of $9,638,541, delivered in substitution for the CoreStates Series B Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.33 All terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York, unless otherwise defined herein shall have the meanings set forth therein. All references to any term in the plural shall include the singular and all references to any term in the singular shall include the plural. 2. SUBORDINATION OF JUNIOR DEBT 2.1 Subordination. Except as specifically set forth in Section 2.2 hereof, Junior Creditor hereby subordinates its right to payment and satisfaction of the Junior Debt, and the payment and satisfaction thereof, directly or indirectly, by any means whatsoever, is hereby deferred, to the prior indefeasible payment and satisfaction in full of all Senior Debt. 2.2 Permitted Payments. Senior Creditor hereby agrees that, notwithstanding anything to the contrary contained in Section 2.1: (a) Debtor may make and Junior Creditor may receive and retain, payments by Debtor of bank fees and other expenses set forth in Sections 2.03(a) through (f) of the Swiss Bank Reimbursement Agreement as in effect on the date hereof, when due and payable in accordance with such provisions; provided that, such fees and expenses accrued or incurred through the date hererof do not exceed $47,500 in the aggregate; and provided further that, in the case of those fees or expenses accrued or incurred after the date hereof, written notice has not been given to Junior Creditor to the effect that a Senior Debt Default exists or has occurred and is continuing at the time of any such payment or would exist or occur as a result thereof; (b) Debtor may make, and Junior Creditor may receive and retain, payments by Debtor of Debtor's reimbursement obligations owed to Junior Creditor under the Swiss Bank - 7 - 8 Reimbursement Agreement in respect of drawings paid under the Swiss Bank Letters of Credit for (i) regularly schedule monthly payments of interest when due under the Series A Note Agreements, Series B Note Agreements and Littlestown IDB Agreements as each is in effect on the date hereof and (ii) the regularly scheduled reductions of principal due and payable on October 1, 1997 under the Series A Notes and Series B Notes, each such reduction to be in the amount of $500,000; provided that written notice has not been given to Junior Creditor to the effect that a Senior Debt Default exists or has occurred and is continuing at the time of any such payment or would exist or occur as a result thereof; (c) if any of the Series A Notes, Series B Notes or the Littlestown Bonds are purchased with funds drawn under the Swiss Bank Series A Letter of Credit, the Swiss Bank Series B Letter of Credit and the Swiss Bank Littlestown Letter of Credit in accordance with the terms thereof and of the Series A Note Agreements, the Series B Note Agreements and the Littlestown IDB Agreements, respectively, as each is in effect on the date hereof, the proceeds (if any) obtained following such purchase from the remarketing of any of the Series A Notes, Series B Notes and Littlestown Bonds so purchased, as the case may be, but prior to Junior Creditor's receipt of written notice of the existence or occurrence of a Senior Debt Default that is continuing ("Remarketing Proceeds"), may be received and retained by the Junior Creditor (but such amounts permitted to be received and retained by the Junior Creditor shall not in any event include any payment by Debtor, or amounts collected from Debtor, in respect of or to purchase any of the obligations arising under or evidenced by the Series A Notes, Series A Note Agreements, Series B Notes, Series B Note Agreements, Littlestown Bonds or Littlestown IDB Agreements); and (a) Richemont may make, and Junior Creditor may receive and retain, payments by Richemont of its obligations when due under the Richemont Guaranty, whether or not a Senior Debt Default exists or has occurred and is continuing and whether or not notice thereof is given to the Junior Creditor hereunder. 2.3 Distributions. (a) In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of Debtor or the proceeds thereof to the creditors of Debtor or readjustment of the obligations and indebtedness of Debtor, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors, marshalling of assets of Debtor or any other action or proceeding involving the readjustment of all or any part of indebtedness of Debtor or the application of the assets of Debtor to the payment or liquidation thereof (each of the foregoing, an "Insolvency - 8 - 9 Proceeding"), or upon the dissolution or other winding up of Debtor's business, or upon the sale of all or substantially all of Debtor's assets, then, and in any such event, (i) Senior Creditor shall first receive indefeasible payment in full in cash of all of the Senior Debt prior to the payment of all or any part of the Junior Debt, and (ii) Senior Creditor shall be entitled to receive any payment or distribution of any kind or character, whether in cash, securities or other property, which is payable or deliverable in respect of any or all of the Junior Debt. (b) In order to enable Senior Creditor to enforce its rights under Section 2.3(a) hereof, Senior Creditor is hereby irrevocably authorized and empowered (in its own name or in the name of Junior Creditor or otherwise), but shall have no obligation, to enforce claims comprising any of the Junior Debt by proof of debt, proof of claim, suit or otherwise and take generally any action which Junior Creditor might otherwise be entitled to take, as Senior Creditor may deem necessary or advisable for the enforcement of its rights or interests hereunder. (c) To the extent necessary for Senior Creditor to realize the benefits of the subordination of the Junior Debt provided for herein (including the right to receive any and all payments and distributions which might otherwise be payable or deliverable with respect to the Junior Debt in any Insolvency Proceeding or otherwise), Junior Creditor shall execute and deliver to Senior Creditor such instruments or documents (together with such assignments or endorsements as Senior Creditor shall deem necessary), as may be requested by Senior Creditor. 2.4 Payments Received by Junior Creditor. Except for payments received by Junior Creditor as provided in Section 2.2 hereof, should any payment or distribution or security or instrument or proceeds thereof be received by the Junior Creditor in respect of the Junior Debt, Junior Creditor shall receive and hold the same in trust, as trustee, for the benefit of Senior Creditor, segregated from other funds and property of Junior Creditor and shall forthwith deliver the same to Senior Creditor (together with any endorsement or assignment of Junior Creditor where necessary), for application to any of the Senior Debt. In the event of the failure of Junior Creditor to make any such endorsement or assignment to Senior Creditor, Senior Creditor, or any of its officers or employees, are hereby irrevocably authorized on behalf of Junior Creditor to make the same. 2.5 Instrument Legend and Notation. Any instrument at any time evidencing the Junior Debt, or any portion thereof, shall be permanently marked on its face with a legend conspicuously indicating that payment thereof is subordinate in right of payment to the Senior Debt and subject to the terms and - 9 - 10 conditions of this Subordination Agreement, and (a) after being so marked certified copies thereof shall be delivered to Senior Creditor and (b) the original of any such instrument shall be immediately delivered to Senior Creditor upon Senior Creditor's request, at any time on or after the commencement of an Insolvency Proceeding. In the event any legend or endorsement is omitted, Senior Creditor, or any of its officers or employees, are hereby irrevocably authorized on behalf of Junior Creditor to make the same. No specific legend, further assignment or endorsement or delivery of notes, guarantees or instruments shall be necessary to subject any Junior Debt to the subordination thereof contained in this Agreement. 3. COVENANTS, REPRESENTATIONS AND WARRANTIES 3.1 Additional Covenants. Junior Creditor and Debtor agree in favor of Senior Creditor that: (a) except as specifically set forth in Section 2.2 hereof, Debtor shall not, directly or indirectly, make and Junior Creditor shall not, directly or indirectly, accept or receive any payment of or any prepayment or any payment pursuant to acceleration or claims of breach or any payment to acquire Junior Debt or otherwise in respect of any Junior Debt; (b) notwithstanding any rights or remedies available to it under the Junior Creditor Agreements, applicable law or otherwise, Junior Creditor shall not, directly or indirectly, (i) seek to collect from Debtor any of the Junior Debt or exercise any of its rights or remedies against Debtor upon a default or event of default by Debtor under the Junior Creditor Agreements or otherwise or (ii) commence any action or proceeding against Debtor or Debtor's properties under the U.S. Bankruptcy Code or any state insolvency law or any similar present or future statute, law or regulation or any proceedings for voluntary liquidation, dissolution or other winding up of Debtor's business, or the appointment of any trustee, receiver or liquidator for Debtor or any part of Debtor's properties or any assignment for the benefit of creditors or any marshalling of assets of Debtor or (iii) take any other action against Debtor or Debtor's properties in respect of the Junior Debt; (c) Junior Creditor shall not acquire any guarantees for the Junior Debt or other agreements under which any person, other than Hanover, is or may become obligated, directly or indirectly, for all or any portion of the Junior Debt, except the Richemont Guaranty, and Debtor shall not grant to Junior Creditor and Junior Creditor shall not acquire any security interest, lien, claim or encumbrance on any assets or properties of Debtor, except for the rights and interests of Junior Creditor in any Remarketing Proceeds as permitted pursuant to Section 2.2(c) hereof and any security interest in any Series A Notes, Series B - 10 - 11 Notes, or Littlestown Bonds Purchased with funds drawn under the Swiss Bank Letters of Credit, but only to the extent of entitling Junior Creditor to receive any Remarketing Proceeds arising therefrom; (d) Junior Creditor and Debtor shall not amend, modify, alter or change in any material respect the terms of any arrangements related to the Junior Debt; (e) Junior Creditor shall not sell, assign, pledge, encumber or otherwise dispose of any of the Junior Debt, or subordinate any of the Junior Debt to any indebtedness of Debtors other than the Senior Debt, except that Junior Creditor may assign or sell participations expressly subject hereto, a portion of the Junior Debt to certain other financial institutions ("Participating Banks") so long as (i) Junior Creditor provides Senior Creditor five (5) days' prior written notice of such participation, (ii) such Participating Bank is reasonably acceptable to Senior Creditor, (iii) contemporaneously with such assignment, Junior Creditor causes such Participating Bank to enter into a written agreement in favor of Junior Creditor (the "Participating Bank Agreement"), in form and substance satisfactory to Senior Creditor, pursuant to which such Participating Bank, shall agree, among other things, to be bound by the terms of this Subordination Agreement, and (iv) such Participating Bank delivers, in form and substance satisfactory to Senior Creditor (A) evidence of the adoption and subsistence of authorizing resolutions of such Particpating Bank approving the execution, delivery and performance by such Participating Bank of the Participating Bank Agreement and (B) an opinion of counsel to such Participating Bank addressed to Senior Creditor with respect to the due authorization, execution, validity and enforceability of the Participating Bank Agreement, and as to such other matters as Senior Creditor shall reasonably require; (f) Junior Creditor and Debtor shall, at any time or times upon the request of Senior Creditor, promptly furnish to Senior Creditor a true, correct and complete statement of the outstanding Junior Debt; and (g) Junior Creditor and Debtor shall execute and deliver to Senior Creditor such additional agreements, documents and instruments and take such further actions as may be necessary or desirable in the opinion of Senior Creditor to effectuate the provisions and purposes of this Subordination Agreement. 3.2 Additional Representations and Warranties. Junior Creditor and Debtor represent and warrant to Senior Creditor that: (a) Junior Creditor has no guarantee or other agreement from any person, other than Hanover, under which such - 11 - 12 person is or may become obligated, directly or indirectly, for all or any portion of the Junior Debt, except for the Richemont Guaranty, and Junior Creditor has no security interest, lien, claim or encumbrance on any assets and properties of Debtor and the Junior Debt is unsecured, except that Junior Creditor has a right to receive Remarketing Proceeds as permitted under Section 2.2(c) hereof, and may hold an interest in the Series A Notes, Series B Notes or Littlestown Bonds purchased with funds drawn under the Swiss Bank Letters of Credit, but only to the extent of entitling Junior Creditor to receive any Remarketing Proceeds arising therefrom; and expressly provided that no Series A Notes, Series B Notes or Littlestown Bonds purchased with drawings under the Swiss Bank Letters of Credit shall be remarketed, sold or otherwise disposed of by or for Junior Creditor after receipt of written notice that a Senior Debt Default exists or has occurred and is continuing; (b) as of the date hereof, no default or event of default, or event which with notice or passage of time or both would constitute an event of default exists or has occurred under the Junior Creditor Agreements; (c) Junior Creditor is the exclusive legal and beneficial owner of all of the Junior Debt; (d) Junior Creditor has established a New York Branch, duly licensed by the New York Superintendent of Banks, and has obtained all approvals, licenses and permits from all Federal and State banking and other governmental entities necessary to issue the Swiss Bank Letters of Credit and to execute, deliver and perform this Subordination Agreement; (e) none of the Junior Debt is subject to any lien, security interest, financing statements, subordination, assignment or other claim, except in favor of Senior Creditor; and (f) this Subordination Agreement constitutes the legal, valid and binding obligations of Junior Creditor, enforceable in accordance with its terms. 3.3 Waivers. Notice of acceptance hereof, the making of loans, advances and extensions of credit or other financial accommodations to, and the incurring of any expenses by or in respect of, Hanover or its subsidiaries by Senior Creditor, and presentment, demand, protest, notice of protest, notice of nonpayment or default and all other notices to which Junior Creditor and Debtor are or may be entitled are hereby waived (except as expressly provided for herein or as to Debtor, in the Senior Creditor Agreements). Junior Creditor also waives notice of, and hereby consents to, (a) any amendment, modification, supplement, renewal, restatement or extensions of time of payment - 12 - 13 of or increase or decrease in the amount of any of the Senior Debt or to the Senior Creditor Agreements or any collateral at any time granted to or held by Senior Creditor, (b) the taking, exchange, surrender and releasing of collateral at any time granted to or held by Senior Creditor or guarantees now or at any time held by or available to Senior Creditor for the Senior Debt or any other person at any time liable for or in respect of the Senior Debt, (c) the exercise of, or refraining from the exercise of any rights against Debtor or any other obligor or any collateral at any time granted to or held by Senior Creditor, (d) the settlement, compromise or release of, or the waiver of any default with respect to, any of the Senior Debt, and/or (e) Senior Creditor's election, in any proceeding instituted under the U.S. Bankruptcy Code of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of the foregoing shall not, in any manner, affect the terms hereof or impair the obligations of Junior Creditor hereunder. All of the Senior Debt shall be deemed to have been made or incurred in reliance upon this Subordination Agreement. 3.4 Subrogation; Marshalling. Junior Creditor shall not be subrogated to, or be entitled to any assignment of any Senior Debt or of any collateral for or guarantees or evidence of any thereof until all of the Senior Debt is indefeasibly paid and satisfied in full. Junior Creditor hereby waives any and all rights to have any collateral or any part thereof granted to or held by Senior Creditor marshalled upon any foreclosure or other disposition of such collateral by Senior Creditor or Debtor with the consent of Senior Creditor. 3.5 No Offset. In the event Junior Creditor at any time incurs any obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees that it shall pay such obligation in cash or cash equivalents in accordance with the terms of the contract governing such obligation and shall not deduct from or setoff against any amounts owed by Junior Creditor to Debtor in connection with any such transaction any amounts the Junior Creditor claims are due to it with respect to the Junior Debt. 4. MISCELLANEOUS 4.1 Amendments. Any waiver, permit, consent or approval by either Creditor of or under any provision, condition or covenant to this Subordination Agreement must be in writing and shall be effective only to the extent it is set forth in writing and as to the specific facts or circumstances covered thereby. Any amendment of this Subordination Agreement must be in writing and signed by each of the parties to be bound thereby. 4.2 Successors and Assigns. - 13 - 14 (a) This Subordination Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of each of Creditors and its respective successors, participants and assigns. (b) Senior Creditor reserves the right to grant participations in, or otherwise sell, assign, transfer or negotiate all or any part of, or any interest in, the Senior Debt and the collateral securing same; provided, that, Junior Creditor shall not be obligated to give any notices to or otherwise in any manner deal directly with any participant in the Senior Debt and no participant shall be entitled to any rights or benefits under this Subordination Agreement except through Senior Creditor. In connection with any participation or other transfer or assignment, Senior Creditor (i) may disclose to such assignee, participant or other transferee or assignee all documents and information which Senior Creditor now or hereafter may have relating to the Senior Debt or any collateral and (ii) shall disclose to such participant or other transferee or assignee the existence and terms and conditions of this Subordination Agreement. (c) In connection with any assignment or transfer of any or all of the Senior Debt, or any or all rights of Senior Creditor in any of the property of Hanover or its subsidiaries (other than pursuant to a participation), Junior Creditor agrees to execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any such assignee or transferee and, in addition, will execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any third person who succeeds to or replaces any or all of Senior Creditor's financing of certain subsidiaries of Hanover, whether such successor financing or replacement occurs by transfer, assignment, "takeout" or any other means. 4.3 Insolvency. This Subordination Agreement shall be applicable both before and after the filing of any petition by or against Hanover or any of its subsidiaries under the U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof, and all references herein to Debtor or any of Hanover's subsidiaries shall be deemed to apply to a trustee for Hanover or any of its subsidiaries, as well as to Hanover or any of its subsidiaries as debtor-in-possession. The relative rights of Senior Creditor and Junior Creditor to repayment of the Senior Debt and the Junior Debt, respectively, and in or to any distributions from or in respect of Debtor or any proceeds of Debtor's property and assets, shall continue after the filing thereof on the same basis as prior to the date of the petition, subject to any court order approving the financing of, or use of cash collateral by, Hanover or any of its subsidiaries as debtor-in-possession. - 14 - 15 4.4 Bankruptcy Financing. If Hanover or any of its subsidiaries shall become subject to a proceeding under the U.S. Bankruptcy Code and if Senior Creditor desires to permit the use of cash collateral or to provide financing to Hanover or any of its subsidiaries under either Section 363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor agrees as follows: (a) adequate notice to Junior Creditor (if required) shall have been provided for such financing or use of cash collateral if Junior Creditor receives notice two (2) business days prior to the entry of the order approving such financing or use of cash collateral and (b) no objection will be raised by Junior Creditor to any such use of cash collateral or financing. For purposes of this Section, notice of a proposed financing or use of cash collateral shall be deemed given when given in the manner prescribed by Section 4.5 hereof to Junior Creditor. 4.5 Notices. All notices, requests and demands to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if mailed by certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands are to be given or made to the respective parties at their addresses set forth below (or to such other addresses as either party may designate by notice in accordance with the provisions of this Section: To Senior Creditor: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Mr. Mark Fagnani To Junior Creditor: Swiss Bank Corporation New York Branch 10 East 50th Street New York, New York 10022 Attention: Jorg Rauthe with a copy to: Whitman Breed Abbott & Morgan 200 Park Avenue New York, New York 10166 Attention: D. de La Chapelle, Esq. Either Creditor may change the address(es) to which all notices, requests and other communications are to be sent by giving written notice of such address change to the other Creditor in conformity with this Section 4.5, but such change shall not be effective until notice of such change has been received by the other Creditor. - 15 - 16 4.6 Counterparts. This Subordination Agreement may be executed in any number of counterparts, each of which shall be an original with the same force and effect as if the signatures thereto and hereto were upon the same instrument. 4.7 Governing Law. The validity, construction and effect of this Subordination Agreement shall be governed by the laws of the State of New York (without giving effect to principles of conflicts of law). 4.8 Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties hereto hereby irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of the State of New York for New York County and the United States District Court for the Southern District of New York and waives trial by jury in any action or proceeding with respect to this Subordination Agreement. 4.9 Complete Agreement. This written Subordination Agreement is intended by the parties as a final expression of their agreement and is intended as a complete statement of the terms and conditions of their agreement. 4.10 No Third Parties Benefitted. This Subordination Agreement is solely for the benefit of the Creditors and their respective successors, participants and assigns, and no other person shall have any right, benefit, priority or interest under, or because of the existence of, this Subordination Agreement. 4.11 Disclosures, Non-Reliance. Each Creditor has the means to, and shall in the future remain, fully informed as to the financial condition and other affairs of Debtor and neither Creditor shall have any obligation or duty to disclose any such information to any other Creditor. Except as expressly set forth in this Subordination Agreement, the parties hereto have not otherwise made to each other nor do they hereby make to each other any warranties, express or implied, nor do they assume any liability to each other with respect to: (a) the enforceability, validity, value or collectability of any of the Junior Debt or the Senior Debt or any collateral or guarantee which may have been granted to any of them in connection therewith, (b) Debtor's title to or right to any of Debtor's assets and properties or (c) any other matter except as expressly set forth in this Subordination Agreement. 4.12 Term. This Subordination Agreement is a continuing agreement and shall remain in full force and effect until the indefeasible satisfaction in full of all Senior Debt and the termination of the financing arrangements among Senior Creditor, Hanover and certain subsidiaries of Hanover. - 16 - 17 IN WITNESS WHEREOF, the parties have caused this Subordination Agreement to be duly executed as of the day and year first above written. CONGRESS FINANCIAL CORPORATION By: /s/ John T. Garvey ---------------------------- Title: Assistant Vice President ------------------------ SWISS BANK CORPORATION, New York Branch By: /s/ Guido W. Schuler -------------------------- Title: Executive Director ----------------------- By: /s/ Jorg Rauthe -------------------------- Title: Associate Director ----------------------- - 17 - 18 ACKNOWLEDGMENT Each of the undersigned hereby acknowledges and agrees to the foregoing terms and provisions. By its signature below, each of the undersigned agrees that it shall, together with its successors and assigns, be bound by the provisions hereof. Each of the undersigned acknowledges and agrees that: (i) although it may sign this Subordination Agreement, it is not a party hereto and does not and shall not receive any right, benefit, priority or interest under or because of the existence of the foregoing Subordination Agreement, (ii) in the event of a breach by the undersigned of any of the terms and provisions contained in the foregoing Subordination Agreement, such a breach shall constitute an "Event of Default" as defined in and under the Senior Creditor Agreements, and (iii) it shall execute and deliver such additional documents and take such additional action as may be necessary in the opinion of either Creditor to effectuate the provisions and purposes of the foregoing Subordination Agreement. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien __________________________ Title: Senior Vice President _______________________ HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien __________________________ Title: Vice President _______________________ BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien __________________________ Title: Vice President _______________________ [SIGNATURES CONTINUE ON NEXT PAGE] - 18 - 19 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- GUMP'S CORP. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- TWEEDS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien ------------------------- Title: Vice President ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] - 19 - 20 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien ________________________ Title: Vice President ______________________ HANOVER REALTY, INC. By: /s/ Edward J. O'Brien ________________________ Title: Vice President ______________________ THE AUSTAD COMPANY By: /s/ Edward J. O'Brien ________________________ Title: Vice President ______________________ AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien ________________________ Title: Vice President ______________________ AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien ________________________ Title: Vice President ______________________ AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien ________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON FOLLOWING PAGE] - 20 - 21 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON FOLLOWING PAGE] - 21 - 22 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ [SIGNATURES CONTINUE ON FOLLOWING PAGE] - 22 - 23 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ LWI RETAIL, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien ____________________________ Title: Vice President _________________________ - 23 - EX-10.41 14 SUBORDINATION AGREEMENT DATED DECEMBER 18, 1996 1 Exhibit 10.41 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT ("Subordination Agreement"), dated as of December 18, 1996, is by and between CONGRESS FINANCIAL CORPORATION, a California corporation ("Senior Creditor", as hereinafter further defined), and RICHEMONT FINANCE S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg ("Junior Creditor", as hereinafter further defined). Senior Creditor and Junior Creditor are sometimes individually referred to herein as "Creditor" and collectively as "Creditors." W I T N E S S E T H: WHEREAS, Senior Creditor has entered into financing arrangements with Hanover Direct, Inc. ("Hanover", as hereinafter further defined) and certain of its subsidiaries, pursuant to which Senior Creditor has, upon certain terms and conditions, made loans and provided other financial accommodations to certain subsidiaries of Hanover, guaranteed by Hanover and certain subsidiaries of Hanover, secured by substantially all of the assets and properties of Hanover and of such borrower subsidiaries and guarantor subsidiaries of Hanover (such subsidiaries, together with Hanover, individually and collectively, "Debtor", as hereinafter further defined); and WHEREAS, pursuant to such financing arrangements, Senior Creditor has previously arranged for the issuance of the CoreStates Letters of Credit (as hereinafter defined); and WHEREAS, Swiss Bank (as hereinafter defined) is about to enter into the Swiss Bank Reimbursement Agreement with Hanover, pursuant to which Swiss Bank will issue the Swiss Bank Letters of Credit (as hereinafter defined) which will be substituted for the CoreStates Letters of Credit and the NationsBank Littlestown Letter of Credit, each of which shall, concurrently with such substitution, be surrendered for cancellation or otherwise cancelled; and WHEREAS, Junior Creditor is about to execute a Guaranty in favor of Swiss Bank of Hanover's reimbursement obligations to Swiss Bank and Debtor and Junior Creditor are about to enter into a reimbursement agreement relating thereto; and WHEREAS, in order to induce Senior Creditor to continue the financing arrangements with Hanover and certain subsidiaries of Hanover, Junior Creditor has agreed to the subordination in favor of Senior Creditor as provided herein of its right to payment of the existing and future obligations of Debtor to Junior Creditor arising in connection with or relating to the Swiss Bank Letters 2 of Credit and the Guaranty by Junior Creditor relating thereto, and related matters as set forth below; NOW THEREFORE, in consideration of the mutual benefits accruing to Creditors hereunder and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: 1. DEFINITIONS As used above and in this Subordination Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Agreements" shall mean, individually and collectively, the Senior Creditor Agreements and the Junior Creditor Agreements. 1.2 "CoreStates" shall mean CoreStates Bank, N.A., a national banking association, and its successors and assigns. 1.3 "Corestates Letters of Credit" shall mean, individually and collectively, the CoreStates Series A Letter of Credit, the CoreStates Series B Letter of Credit and the CoreStates Littlestown Backup Letter of Credit. 1.4 "CoreStates Littlestown Backup Letter of Credit" shall mean the Irrevocable Standby Letter of Credit No. 516262P, dated November 14, 1995, issued in the initial stated amount of $8,560,000 by CoreStates for the account of certain subsidiaries of Debtor, in favor of NationsBank, National Association. 1.5 "CoreStates Series A Letter of Credit" shall mean the Irrevocable Transferable Letter of Credit No. 516466P, dated December 27, 1995, issued in the initial stated amount of $10,145,833 by CoreStates for the account of certain subsidiaries of Debtor, in favor of Norwest Bank Minnesota, N.A., as Trustee under the Series A Note Agreements. 1.6 "CoreStates Series B Letter of Credit" shall mean the Irrevocable Transferable Letter of Credit No. 516467P, dated December 27, 1995, issued in the initial stated amount of $10,145,833 by CoreStates for the account of certain subsidiaries of Debtor in favor of Norwest Bank Minnesota Bank, N.A., as Trustee under the Series B Note Agreements. 1.7 "Creditors" shall mean, individually and collectively, Senior Creditor and Junior Creditor and their respective successors and assigns. 1.8 "Debtor" shall mean, individually and collectively, Hanover and each of its existing and future subsidiaries who are or become parties (as borrower or guarantor or who are or become - 2 - 3 otherwise obligated for all or part of the Senior Debt) to the Senior Creditor Agreements, and their respective successors and assigns, including, without limitation, a receiver, trustee, or debtor-in-possession on behalf of any such person or on behalf of any such successor or assign. 1.9 "Hanover" shall mean Hanover Direct, Inc., a Delaware corporation and its successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of such person or on behalf of any such successor or assign. 1.10 "Insolvency Proceeding" shall have the meaning given in Section 2.3 hereof. 1.11 "Junior Creditor" shall mean Richemont Finance S.A., a societe anonyme organized under the laws of the Grand Duchy of Luxembourg, and its successors and assigns. 1.12 "Junior Creditor Agreements" shall mean, individually and collectively, the Richemont Reimbursement Agreement, the rights of Junior Creditor at any time under any of the Swiss Bank Agreements, or under or by reason of the Richemont Guaranty, and all agreements, documents and instruments at any time executed and/or delivered by Debtor or any other person to, with or in favor of Junior Creditor in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.13 "Junior Debt" shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by Debtor to Junior Creditor, including principal, interest, charges, fees, premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under or evidenced by or in connection with the Junior Creditor Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Junior Creditor Agreements or after the commencement of any case with respect to Debtor under the U.S. Bankruptcy Code or any similar statute (and including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowable in whole or in part, in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly, or by way of subrogation, contribution, reimbursement, indemnification, exoneration or otherwise, or howsoever acquired by Junior Creditor. 1.14 "Littlestown Bonds" shall mean the Variable Rate Demand Industrial Development Revenue Refunding Bonds, 1987 Series - 3 - 4 (Hanover House Industries, Inc. Project), issued on behalf of Hanover House Industries Inc., now known as Hanover Direct Pennsylvania, Inc., in the original principal amount of $8,000,000, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.15 "Littlestown IDB Agreements" shall mean, collectively, the Indenture of Trust, dated as of September 1, 1987, presently between the Littlestown Industrial Development Authority and Fleet National Bank, as successor Trustee in connection with the Littlestown Bonds, and all agreements, documents and instruments at any time executed and/or delivered in connection therewith, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.16 "NationsBank Littlestown Letter of Credit" shall mean the letter of credit no. 41055, dated November 2 ,1994, issued in the initial stated amount of $8,560,000 by NationsBank for the account of Hanover Direct Pennsylvania, Inc., in favor of Fleet National Bank, as Trustee under the Littlestown IDB Agreements. 1.17 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), business trust, unincorporated association, joint stock company, trust, joint venture, limited liability company, limited liability partnership, or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.18 "Richemont Guaranty" shall mean the Guaranty, dated of even date herewith, by Junior Creditor in favor of Swiss Bank with respect to the obligations of Hanover to Swiss Bank, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.19 "Richemont Reimbursement Agreement" shall mean the Hanover Indemnity Agreement, dated of even date herewith, by and between Debtor and Junior Creditor pursuant to which Debtor has agreed to reimburse Junior Creditor for amounts that are paid by Junior Creditor in connection with the Swiss Bank Letters of Credit and/or the Richemont Guaranty. 1.20 "Senior Creditor" shall mean Congress Financial Corporation, a California corporation, and its successors and assigns. 1.21 "Senior Creditor Agreements" shall mean, individually and collectively, the Loan and Security Agreement, dated November 14, 1995, by and among Senior Creditor, Hanover and certain subsidiaries of Hanover, as amended (the "Loan Agreement"), the Guarantee and Waivers, each dated November 14, - 4 - 5 1995, by Hanover and certain of its subsidiaries in favor of Senior Creditor, the General Security Agreements, each dated November 14, 1995, by Hanover and certain of its subsidiaries in favor of Senior Creditor and all agreements, documents and instruments at any time executed and/or delivered by Debtor or any other person to, with or in favor of Senior Creditor in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.22 "Senior Debt" shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by Debtor to Senior Creditor and/or its affiliates, or participants, including principal, interest, charges, fees, premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Senior Creditor Agreements or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Senior Creditor Agreements or after the commencement of any case with respect to Debtor under the U.S. Bankruptcy Code or any similar statute (and including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowable either in whole or in part, in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly, or by way of subrogation, contribution, reimbursement, indemnification, exoneration or otherwise, or howsoever acquired by Senior Creditor. 1.23 "Series A Note Agreements" shall mean, individually and collectively, the Series A Note Agreement, dated as of November 9, 1994, presently between Hanover and Norwest Bank Minnesota, N.A., as Trustee, with respect to the issuance and sale of the Series A Notes, and all agreements, documents and instruments at any time executed and/or delivered by Hanover or any related parties in connection therewith, including, without limitation, the Second Supplemental Series A Note Agreement, dated as of December 18, 1996, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.24 "Series A Notes" shall mean the Flexible Term Notes, Series A, originally issued on November 9, 1994, by Hanover in the original aggregate principal amount of $10,000,000, as replaced or modified through the date hereof pursuant to the Series A Note Agreements, and as the same may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. - 5 - 6 1.25 "Series B Note Agreements" shall mean, individually and collectively, the Series B Note Agreement, dated as of April 27, 1995, presently between Hanover and Norwest Bank Minnesota, N.A., as Trustee, with respect to the issuance and sale of the Series B Notes, and all other agreements, documents or instruments at any time executed and/or delivered in connection therewith, including, without limitation, the Second Supplemental Series B Note Agreement, dated as of December 18, 1996, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.26 "Series B Notes" shall mean the Flexible Term Notes, Series B, originally issued on April 27, 1995, by Hanover in the original aggregate principal amount of $10,000,000, as replaced or modified through the date hereof pursuant to the Series B Note Agreements, and as the same may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.27 "Swiss Bank" shall mean, individually and collectively, Swiss Bank Corporation, a banking corporation organized under the laws of Switzerland, acting through its New York Branch, and any other issuer of a letter of credit or guaranty that hereafter replaces or substitutes for any of the Swiss Bank Letters of Credit, and their respective successors and assigns. 1.28 "Swiss Bank Agreements" shall mean, individually and collectively, (a) the Swiss Bank Reimbursement Agreement, (b) the Swiss Bank Letters of Credit, (c) the rights of Swiss Bank under the Series A Note Agreements and any Series A Notes at any time held by or for Swiss Bank, (d) the rights of Swiss Bank under the Series B Note Agreements and any Series B Notes at any time held by or for Swiss Bank, (e) the rights of Swiss Bank under the Littlestown IDB Agreements and any Littlestown Bonds at any time held by or for Swiss Bank and (f) all agreements, documents and instruments at any time executed and/or delivered by Debtor or any other person to, with or in favor of Swiss Bank in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.29 "Swiss Bank Letters of Credit" shall mean, collectively, the Swiss Bank Littlestown Letter of Credit, the Swiss Bank Series A Letter of Credit and the Swiss Bank Series B Letter of Credit, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.30 "Swiss Bank Littlestown Letter of Credit" shall mean the Letter of Credit No. S567171 dated December 18, 1996, issued by Swiss Bank for the account of Hanover Direct Pennsylvania, Inc. in favor of Fleet National Bank, as Trustee under the Littlestown IDB Agreements, in the initial stated amount of $8,560,000, delivered in substitution for the NationsBank - 6 - 7 Littlestown Letter of Credit and the CoreStates Littlestown Backup Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.31 "Swiss Bank Reimbursement Agreement" shall mean the Reimbursement Agreement, dated of even date herewith, by and between Hanover and Swiss Bank with respect to the Swiss Bank Letters of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.32 "Swiss Bank Series A Letter of Credit" shall mean the Letter of Credit No. S567169 dated December 18, 1996, issued by Swiss Bank for the account of Hanover in the initial stated amount of $9,638,541, delivered in substitution for the CoreStates Series A Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.33 "Swiss Bank Series B Letter of Credit" shall mean the Letter of Credit No. S567170, dated December 18, 1996, issued by Swiss Bank for the account of Hanover in the initial stated amount of $9,638,541, delivered in substitution for the CoreStates Series B Letter of Credit, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.34 All terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York, unless otherwise defined herein shall have the meanings set forth therein. All references to any term in the plural shall include the singular and all references to any term in the singular shall include the plural. 2. SUBORDINATION OF JUNIOR DEBT 2.1 Subordination. Except as specifically set forth in Section 2.2 hereof, Junior Creditor hereby subordinates its right to payment and satisfaction of the Junior Debt, and the payment and satisfaction thereof, directly or indirectly, by any means whatsoever, is hereby deferred, to the prior indefeasible payment and satisfaction in full of all Senior Debt. 2.2 Permitted Payments. (a) Senior Creditor hereby agrees that, notwithstanding anything to the contrary contained in Section 2.1 hereof, Debtor may make and Junior Creditor may receive and retain from Debtor, a payment consisting of expenses and attorneys' fees, not to exceed the aggregate amount of $45,000, required to be reimbursed or paid by Debtor to Junior Creditor - 7 - 8 incurred in connection with the issuance of the Swiss Bank Letters of Credit, plus the fee in the sum of $1,391,854.10, payable to Junior Creditor pursuant to Section 6 of the Richemont Reimbursement Agreement, as in effect on the date hereof, but not any other payments whatsoever in respect of the Junior Debt. (b) Debtor may make, and Junior Creditor may receive and retain, payments by Debtor to Junior Creditor of its indemnification obligations when due and payable pursuant to the provisions of Section 5 of the Richemont Reimbursement Agreement, as in effect on the date hereof, excluding those arising from the payment by Richemont of any amounts to Swiss Bank under the Richemont Guaranty; provided, that the aggregate amount of such indemnification obligations permitted to be so paid after the date hereof shall not exceed the amount of $250,000; and provided, further, that no such payment otherwise permitted shall be made if any "Event of Default" or "Incipient Default" (as such terms are defined in the Loan Agreement referred to in the definition of Senior Creditor Agreements) exists or has occurred and is continuing or would exist or occur as a result thereof. (c) Nothing herein contained shall restrict the right of Junior Creditor to convert all or any part of the Junior Debt to common stock of Hanover in accordance with the Richemont Reimbursement Agreement as in effect on the date hereof. 2.3 Distributions. (a) In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the assets of Debtor or the proceeds thereof to the creditors of Debtor or readjustment of the obligations and indebtedness of Debtor, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors, marshalling of assets of Debtor or any other action or proceeding involving the readjustment of all or any part of indebtedness of Debtor or the application of the assets of Debtor to the payment or liquidation thereof (each of the foregoing, an "Insolvency Proceeding"), or upon the dissolution or other winding up of Debtor's business, or upon the sale of all or substantially all of Debtor's assets, then, and in any such event, (i) Senior Creditor shall first receive indefeasible payment in full in cash of all of the Senior Debt prior to the payment of all or any part of the Junior Debt, and (ii) Senior Creditor shall be entitled to receive any payment or distribution of any kind or character, whether in cash, securities or other property, which is payable or deliverable in respect of any or all of the Junior Debt. (b) In order to enable Senior Creditor to enforce its rights under Section 2.3(a) hereof, Senior Creditor is hereby irrevocably authorized and empowered (in its own name or in the - 8 - 9 name of Junior Creditor or otherwise), but shall have no obligation, to enforce claims comprising any of the Junior Debt by proof of debt, proof of claim, suit or otherwise and take generally any action which Junior Creditor might otherwise be entitled to take, as Senior Creditor may deem necessary or advisable for the enforcement of its rights or interests hereunder. (c) To the extent necessary for Senior Creditor to realize the benefits of the subordination of the Junior Debt provided for herein (including the right to receive any and all payments and distributions which might otherwise be payable or deliverable with respect to the Junior Debt in any Insolvency Proceeding or otherwise), Junior Creditor shall execute and deliver to Senior Creditor such instruments or documents (together with such assignments or endorsements as Senior Creditor shall deem necessary), as may be requested by Senior Creditor. 2.4 Payments Received by Junior Creditor. Except for payments received by Junior Creditor as provided in Section 2.2 hereof, should any payment or distribution or security or instrument or proceeds thereof be received by the Junior Creditor in respect of the Junior Debt, Junior Creditor shall receive and hold the same in trust, as trustee, for the benefit of Senior Creditor, segregated from other funds and property of Junior Creditor and shall forthwith deliver the same to Senior Creditor (together with any endorsement or assignment of Junior Creditor where necessary), for application to any of the Senior Debt. In the event of the failure of Junior Creditor to make any such endorsement or assignment to Senior Creditor, Senior Creditor, or any of its officers or employees, are hereby irrevocably authorized on behalf of Junior Creditor to make the same. 2.5 Instrument Legend and Notation. Any instrument at any time evidencing the Junior Debt, or any portion thereof, shall be permanently marked on its face with a legend conspicuously indicating that payment thereof is subordinate in right of payment to the Senior Debt and subject to the terms and conditions of this Subordination Agreement, and (a) after being so marked certified copies thereof shall be delivered to Senior Creditor and (b) the original of any such instrument shall be immediately delivered to Senior Creditor upon Senior Creditor's request, at any time on or after the commencement of an Insolvency Proceeding. In the event any legend or endorsement is omitted, Senior Creditor, or any of its officers or employees, are hereby irrevocably authorized on behalf of Junior Creditor to make the same. No specific legend, further assignment or endorsement or delivery of notes, guarantees or instruments shall be necessary to subject any Junior Debt to the subordination thereof contained in this Agreement. - 9 - 10 3. COVENANTS, REPRESENTATIONS AND WARRANTIES 3.1 Additional Covenants. Junior Creditor and Debtor agree in favor of Senior Creditor that: (a) Except as specifically set forth in Section 2.2 hereof, Debtor shall not, directly or indirectly, make and Junior Creditor shall not, directly or indirectly, accept or receive any payment of or any prepayment or any payment pursuant to acceleration or claims of breach or any payment to acquire Junior Debt or otherwise in respect of any Junior Debt; (b) notwithstanding any rights or remedies available to it under the Junior Creditor Agreements, applicable law or otherwise, Junior Creditor shall not, directly or indirectly, (i) seek to collect from Debtor any of the Junior Debt or exercise any of its rights or remedies upon a default or event of default by Debtor under the Junior Creditor Agreements or otherwise or (ii) commence any action or proceeding against Debtor or Debtor's properties under the U.S. Bankruptcy Code or any state insolvency law or any similar present or future statute, law or regulation or any proceedings for voluntary liquidation, dissolution or other winding up of Debtor's business, or the appointment of any trustee, receiver or liquidator for Debtor or any part of Debtor's properties or any assignment for the benefit of creditors or any marshalling of assets of Debtor or (iii) take any other action against Debtor or Debtor's properties in respect of the Junior Debt; (c) Debtor shall not grant to Junior Creditor and Junior Creditor shall not acquire any security interest, lien, claim or encumbrance on any assets or properties of Debtor, and Junior Creditor shall not acquire any guarantees or other agreements under which any person, other than Debtor, is or may become obligated, directly or indirectly, for all or any portion of the Junior Debt; (d) Junior Creditor and Debtor shall not amend, modify, alter or change in any material respect the terms of any arrangements related to the Junior Debt; (e) Junior Creditor shall not sell, assign, pledge, encumber or otherwise dispose of any of the Junior Debt, or subordinate any of the Junior Debt to any indebtedness of Debtors other than the Senior Debt, except that Junior Creditor may assign, expressly subject hereto, all of the Junior Debt to an affiliate of Junior Creditor so long as (i) Junior Creditor provides Senior Creditor five (5) days' prior written notice of such assignment, (ii) such affiliate of Junior Creditor is reasonably acceptable to Senior Creditor, (iii) contemporaneously with such assignment, Junior Creditor causes such affiliate to enter into a written agreement in favor of Junior Creditor (the - 10 - 11 "Richemont Affiliate Agreement"), in form and substance satisfactory to Senior Creditor, pursuant to which such affiliate of Junior Creditor, shall agree, among other things, to be bound by the terms of this Subordination Agreement, and (iv) such affiliate of Junior Creditor delivers, in form and substance satisfactory to Senior Creditor (A) evidence of the adoption and subsistence of authorizing resolutions of such affiliate of Junior Creditor approving the execution, delivery and performance by such affiliate of Junior Creditor of the Richemont Affiliate Agreement and (B) an opinion of counsel to such affiliate of Junior Creditor addressed to Senior Creditor with respect to the due authorization, execution, validity and enforceability of the Richemont Affiliate Agreement, and as to such other matters as Senior Creditor shall reasonably require; (f) Junior Creditor and Debtor shall, at any time or times upon the request of Senior Creditor, promptly furnish to Senior Creditor a true, correct and complete statement of the outstanding Junior Debt; and (g) Junior Creditor and Debtor shall execute and deliver to Senior Creditor such additional agreements, documents and instruments and take such further actions as may be necessary or desirable in the opinion of Senior Creditor to effectuate the provisions and purposes of this Subordination Agreement. 3.2 Additional Representations and Warranties. Junior Creditor and Debtor represent and warrant to Senior Creditor that: (a) Junior Creditor has no guarantee or other agreement from any person, other than Debtor, under which such person is or may become obligated, directly or indirectly, for all or any portion of the Junior Debt, and Junior Creditor has no security interest, lien, claim or encumbrance on any assets and properties of Debtor and the Junior Debt is unsecured; (b) as of the date hereof, no default or event of default, or event which with notice or passage of time or both would constitute an event of default exists or has occurred under the Junior Creditor Agreements; (c) Junior Creditor is the exclusive legal and beneficial owner of all of the Junior Debt; (d) none of the Junior Debt is subject to any lien, security interest, financing statements, subordination, assignment or other claim, except in favor of Senior Creditor; and - 11 - 12 (e) this Subordination Agreement constitutes the legal, valid and binding obligations of Junior Creditor, enforceable in accordance with its terms. 3.3 Waivers. Notice of acceptance hereof, the making of loans, advances and extensions of credit or other financial accommodations to, and the incurring of any expenses by or in respect of, Hanover or its subsidiaries by Senior Creditor, and presentment, demand, protest, notice of protest, notice of nonpayment or default and all other notices to which Junior Creditor and Debtor are or may be entitled are hereby waived (except as expressly provided for herein or as to Debtor, in the Senior Creditor Agreements). Junior Creditor also waives notice of, and hereby consents to, (a) any amendment, modification, supplement, renewal, restatement or extensions of time of payment of or increase or decrease in the amount of any of the Senior Debt or to the Senior Creditor Agreements or any collateral at any time granted to or held by Senior Creditor, (b) the taking, exchange, surrender and releasing of collateral at any time granted to or held by Senior Creditor or guarantees now or at any time held by or available to Senior Creditor for the Senior Debt or any other person at any time liable for or in respect of the Senior Debt, (c) the exercise of, or refraining from the exercise of any rights against Debtor or any other obligor or any collateral at any time granted to or held by Senior Creditor, (d) the settlement, compromise or release of, or the waiver of any default with respect to, any of the Senior Debt, and/or (e) Senior Creditor's election, in any proceeding instituted under the U.S. Bankruptcy Code of the application of Section 1111(b)(2) of the U.S. Bankruptcy Code. Any of the foregoing shall not, in any manner, affect the terms hereof or impair the obligations of Junior Creditor hereunder. All of the Senior Debt shall be deemed to have been made or incurred in reliance upon this Subordination Agreement. 3.4 Subrogation; Marshalling. Junior Creditor shall not be subrogated to, or be entitled to any assignment of any Senior Debt or Junior Debt or of any collateral for or guarantees or evidence of any thereof until all of the Senior Debt is indefeasibly paid and satisfied in full. Junior Creditor hereby waives any and all rights to have any collateral or any part thereof granted to or held by Senior Creditor marshalled upon any foreclosure or other disposition of such collateral by Senior Creditor or Debtor with the consent of Senior Creditor. 3.5 No Offset. In the event Junior Creditor at any time incurs any obligation to pay money to Debtor, Junior Creditor hereby irrevocably agrees that it shall pay such obligation in cash or cash equivalents in accordance with the terms of the contract governing such obligation and shall not deduct from or setoff against any amounts owed by Junior Creditor to Debtor in - 12 - 13 connection with any such transaction any amounts the Junior Creditor claims are due to it with respect to the Junior Debt. 4. MISCELLANEOUS 4.1 Amendments. Any waiver, permit, consent or approval by either Creditor of or under any provision, condition or covenant to this Subordination Agreement must be in writing and shall be effective only to the extent it is set forth in writing and as to the specific facts or circumstances covered thereby. Any amendment of this Subordination Agreement must be in writing and signed by each of the parties to be bound thereby. 4.2 Successors and Assigns. (a) This Subordination Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of each of Creditors and its respective successors, participants and assigns. (b) Senior Creditor reserves the right to grant participations in, or otherwise sell, assign, transfer or negotiate all or any part of, or any interest in, the Senior Debt and the collateral securing same; provided, that, Junior Creditor shall not be obligated to give any notices to or otherwise in any manner deal directly with any participant in the Senior Debt and no participant shall be entitled to any rights or benefits under this Subordination Agreement except through Senior Creditor. In connection with any participation or other transfer or assignment, Senior Creditor (i) may disclose to such assignee, participant or other transferee or assignee all documents and information which Senior Creditor now or hereafter may have relating to the Senior Debt or any collateral and (ii) shall disclose to such participant or other transferee or assignee the existence and terms and conditions of this Subordination Agreement. (c) In connection with any assignment or transfer of any or all of the Senior Debt, or any or all rights of Senior Creditor in any of the property of Hanover or its subsidiaries (other than pursuant to a participation), Junior Creditor agrees to execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any such assignee or transferee and, in addition, will execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any third person who succeeds to or replaces any or all of Senior Creditor's financing of certain subsidiaries of Hanover, whether such successor financing or replacement occurs by transfer, assignment, "takeout" or any other means. - 13 - 14 4.3 Insolvency. This Subordination Agreement shall be applicable both before and after the filing of any petition by or against Hanover or any of its subsidiaries under the U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof, and all references herein to Debtor or any of Hanover's subsidiaries shall be deemed to apply to a trustee for Hanover or any of its subsidiaries, as well as to Hanover or any of its subsidiaries as debtor-in-possession. The relative rights of Senior Creditor and Junior Creditor to repayment of the Senior Debt and the Junior Debt, respectively, and in or to any distributions from or in respect of Debtor or any proceeds of Debtor's property and assets, shall continue after the filing thereof on the same basis as prior to the date of the petition, subject to any court order approving the financing of, or use of cash collateral by, Hanover or any of its subsidiaries as debtor-in-possession. 4.4 Bankruptcy Financing. If Hanover or any of its subsidiaries shall become subject to a proceeding under the U.S. Bankruptcy Code and if Senior Creditor desires to permit the use of cash collateral or to provide financing to Hanover or any of its subsidiaries under either Section 363 or Section 364 of the U.S. Bankruptcy Code, Junior Creditor agrees as follows: (a) adequate notice to Junior Creditor (if required) shall have been provided for such financing or use of cash collateral if Junior Creditor receives notice two (2) business days prior to the entry of the order approving such financing or use of cash collateral and (b) no objection will be raised by Junior Creditor to any such use of cash collateral or financing. For purposes of this Section, notice of a proposed financing or use of cash collateral shall be deemed given when given in the manner prescribed by Section 4.5 hereof to Junior Creditor. 4.5 Notices. All notices, requests and demands to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if mailed by certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands are to be given or made to the respective parties at their addresses set forth below (or to such other addresses as either party may designate by notice in accordance with the provisions of this Section: To Senior Creditor: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Mr. Mark Fagnani - 14 - 15 To Junior Creditor: Richemont Finance S.A. 35 Boulevard Prince Henri L 1724 Luxembourg Attention: Mr. Alan Grieve with a copy to: Robert P. Wessely, Esq. Brobeck, Phleger & Harrison LLP 1633 Broadway, 47th Floor New York, New York 10019 Either Creditor may change the address(es) to which all notices, requests and other communications are to be sent by giving written notice of such address change to the other Creditor in conformity with this Section 4.5, but such change shall not be effective until notice of such change has been received by the other Creditor. 4.6 Counterparts. This Subordination Agreement may be executed in any number of counterparts, each of which shall be an original with the same force and effect as if the signatures thereto and hereto were upon the same instrument. 4.7 Governing Law. The validity, construction and effect of this Subordination Agreement shall be governed by the laws of the State of New York (without giving effect to principles of conflicts of law). 4.8 Consent to Jurisdiction; Waiver of Jury Trial. Each of the parties hereto hereby irrevocably consents to the non-exclusive jurisdiction of the Supreme Court of the State of New York for New York County and the United States District Court for the Southern District of New York and waives trial by jury in any action or proceeding with respect to this Subordination Agreement. 4.9 Complete Agreement. (a) This written Subordination Agreement is intended by the parties as a final expression of their agreement and is intended as a complete statement of the terms and conditions of their agreement. (b) The obligations of Junior Creditor under this Subordination Agreement are in addition to, and in no way limited by the terms of the Subordination Agreement, dated as of December 5, 1996, between Junior Creditor and Senior Creditor, as acknowledged by Hanover, nor shall any of the terms thereof be limited or affected by the terms of this Subordination Agreement. 4.10 No Third Parties Benefitted. This Subordination Agreement is solely for the benefit of the Creditors and their respective successors, participants and assigns, and no other - 15 - 16 person shall have any right, benefit, priority or interest under, or because of the existence of, this Subordination Agreement. 4.11 Disclosures, Non-Reliance. Each Creditor has the means to, and shall in the future remain, fully informed as to the financial condition and other affairs of Debtor and neither Creditor shall have any obligation or duty to disclose any such information to any other Creditor. Except as expressly set forth in this Subordination Agreement, the parties hereto have not otherwise made to each other nor do they hereby make to each other any warranties, express or implied, nor do they assume any liability to each other with respect to: (a) the enforceability, validity, value or collectability of any of the Junior Debt or the Senior Debt or any collateral or guarantee which may have been granted to any of them in connection therewith, (b) Debtor's title to or right to any of Debtor's assets and properties or (c) any other matter except as expressly set forth in this Subordination Agreement. 4.12 Term. This Subordination Agreement is a continuing agreement and shall remain in full force and effect until the indefeasible satisfaction in full of all Senior Debt and the termination of the financing arrangements among Senior Creditor, Hanover and certain subsidiaries of Hanover. IN WITNESS WHEREOF, the parties have caused this Subordination Agreement to be duly executed as of the day and year first above written. CONGRESS FINANCIAL CORPORATION By: /s/ John T. Garvey ____________________________ Title: Assistant Vice President RICHEMONT FINANCE S.A. By: /s/ Jan du Plessis ____________________________ Title: Director _________________________ By: /s/ Howard M.S. Tanner ____________________________ Title: Director _________________________ - 16 - 17 ACKNOWLEDGMENT Each of the undersigned hereby acknowledges and agrees to the foregoing terms and provisions. By its signature below, each of the undersigned agrees that it shall, together with their successors and assigns, be bound by the provisions hereof. Each of the undersigned acknowledges and agrees that: (i) although it may sign this Subordination Agreement, it is not a party hereto and does not and shall not receive any right, benefit, priority or interest under or because of the existence of the foregoing Subordination Agreement, (ii) in the event of a breach by the undersigned of any of the terms and provisions contained in the foregoing Subordination Agreement, such a breach shall constitute an "Event of Default" as defined in and under the Senior Creditor Agreements, and (iii) it shall execute and deliver such additional documents and take such additional action as may be necessary in the opinion of either Creditor to effectuate the provisions and purposes of the foregoing Subordination Agreement. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien __________________________ Title: Senior Vice President Secretary & Treasurer _______________________ HANOVER DIRECT PENNSYLVANIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ BRAWN OF CALIFORNIA, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] - 17 - 18 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S BY MAIL, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ GUMP'S CORP. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ THE COMPANY STORE, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ TWEEDS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ LWI HOLDINGS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ AEGIS CATALOG CORPORATION By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON NEXT PAGE] - 18 - 19 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER DIRECT VIRGINIA INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ HANOVER REALTY, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ THE AUSTAD COMPANY By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ AEGIS RETAIL CORPORATION By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ AEGIS SAFETY HOLDINGS, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ AEGIS VENTURES, INC. By: /s/ Edward J. O'Brien _________________________ Title: Vice President ______________________ [SIGNATURES CONTINUE ON FOLLOWING PAGE] - 19 - 20 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] AMERICAN DOWN & TEXTILE COMPANY By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ BRAWN WHOLESALE CORP. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ THE COMPANY FACTORY, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ THE COMPANY OFFICE, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ COMPANY STORE HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ D.M. ADVERTISING, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] - 20 - 21 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] GUMP'S CATALOG, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ GUMP'S HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ HANOVER CASUALS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ HANOVER CATALOG HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ HANOVER FINANCE CORPORATION By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ HANOVER LIST MANAGEMENT, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ [SIGNATURES CONTINUE ON FOLLOWING PAGE] - 21 - 22 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] HANOVER VENTURES, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ LEICHTUNG OF MICHIGAN, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ LWI RETAIL, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ SCANDIA DOWN CORPORATION By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ TWEEDS OF VERMONT, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ YORK FULFILLMENT COMPANY, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ AUSTAD HOLDINGS, INC. By: /s/ Edward J. O'Brien --------------------------- Title: Vice President ------------------------ - 22 - EX-10.42 15 SERIES A NOTE AGREEMENT, DATED NOVEMBER 9, 1994 1 EXHIBIT 10.42 SERIES A NOTE AGREEMENT DATED AS OF NOVEMBER 9, 1994 BETWEEN HANOVER DIRECT, INC. AND NORWEST BANK MINNESOTA, N.A., AS TRUSTEE AND PAYING AGENT $10,000,000 HANOVER DIRECT, INC. FLEXIBLE TERM NOTES, SERIES A B-2 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION PAGE SECTION 1.01. DEFINITIONS................................................. 3 SECTION 1.02. RULES OF CONSTRUCTION....................................... 9 ARTICLE II THE SERIES A NOTES SECTION 2.01. AUTHORIZATION OF SERIES A NOTES; FORM OF SERIES A; DETAILS OF SERIES A NOTES...................................... 10 SECTION 2.02. INTEREST ON THE SERIES A NOTES.............................. 11 SECTION 2.03. EXECUTION AND AUTHENTICATION................................ 13 SECTION 2.04. SERIES A NOTE REGISTER...................................... 13 SECTION 2.05. REGISTRATION AND EXCHANGE OF SERIES A NOTES; PERSONS TREATED AS OWNERS.............................................. 14 SECTION 2.06. AUTHORIZATION OF SERIES A NOTES............................. 14 SECTION 2.07. BOOK-ENTRY SYSTEM; RECORDING AND TRANSFER OF OF THE SERIES A NOTES......................................... 17 SECTION 2.08. MUTILATED, LOST, STOLEN, DESTROYED OR UNDELIVERED SERIES A NOTES......................................... 18 SECTION 2.09. CANCELLATION OF SERIES A NOTES.............................. 19 ARTICLE III REDEMPTION, PURCHASE AND REMARKETING SECTION 3.01. REDEMPTION OF SERIES A NOTES................................ 20 SECTION 3.02. REDEMPTION DATE............................................. 22 SECTION 3.03. SELECTION OF SERIES A NOTES TO BE REDEEMED.................. 22 SECTION 3.04. NOTICE OF REDEMPTION........................................ 23 SECTION 3.05. PAYMENT OF SERIES A NOTES CALLED FOR REDEMPTION; EFFECT OF REDEMPTION............................................. 24 SECTION 3.06. SERIES A NOTES REDEEMED IN PART............................. 24 SECTION 3.07. PURCHASE OF SERIES A NOTES.................................. 24 SECTION 3.08. REMARKETING OF PURCHASED SERIES A NOTES..................... 25 ARTICLE IV PAYMENT OF SERIES A NOTES AND CREATION OF SERIES A LETTER OF CREDIT FUND SECTION 4.01. PAYMENT OF SERIES A NOTES................................... 28 SECTION 4.02. CREATION OF SERIES A LETTER OF CREDIT FUND. ................ 28 SECTION 4.03. FUNDS RECEIVED; APPLICATION OF MONEY IN SERIES A LETTER OF CREDIT FUND. .......................................... 29 SECTION 4.04. MONEYS TO BE HELD IN TRUST. ............................... 30 SECTION 4.05. INVESTMENT OF MONEYS. ..................................... 30 ARTICLE V SERIES A LETTER OF CREDIT SECTION 5.01. REQUIREMENTS FOR SERIES A LETTER OF CREDIT. ............... 32 SECTION 5.02. DRAWS ON SERIES A LETTER OF CREDIT; EXTENSIONS. ............ 32 SECTION 5.03. SUBSTITUTE SERIES A LETTER OF CREDIT........................ 34 SECTION 5.04. ENFORCEMENT OF THE SERIES A LETTER OF CREDIT. ............. 35 3 ARTICLE VI GENERAL COVENANTS AND REPRESENTATIONS SECTION 6.01. PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM. ............... 37 SECTION 6.02. COVENANT TO PERFORM AND REPRESENTATIONS AND WARRANTIES OF THE BORROWER AS TO AUTHORITY, ETC. ....................... 37 SECTION 6.03. FURTHER INSTRUMENTS AND ACTIONS. .......................... 38 SECTION 6.04. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. ............................................ 38 ARTICLE VII DEFAULTS AND REMEDIES SECTION 7.01. EVENTS OF DEFAULT. ........................................ 39 SECTION 7.02. ACCELERATION AND DUTY TO DRAW ON SERIES A LETTER OF CREDIT.. 39 SECTION 7.03. DISPOSITION OF AMOUNTS DRAWN ON SERIES A LETTER OF CREDIT... 40 SECTION 7.04. NO REMEDY EXCLUSIVE. ...................................... 40 SECTION 7.05. APPLICATION OF MONEYS. .................................... 41 SECTION 7.06. WAIVERS OF EVENTS OF DEFAULT. ............................. 41 SECTION 7.07. UNCONDITIONAL RIGHT TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST............................................... 42 SECTION 7.08. [RESERVED]. ............................................... 42 SECTION 7.09. BANK DEEMED HOLDER. ....................................... 42 ARTICLE VIII TRUSTEE, REMARKETING AGENT AND PAYING AGENT SECTION 8.01. DUTIES OF TRUSTEE........................................... 43 SECTION 8.02. RIGHTS OF TRUSTEE........................................... 44 SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE, ETC........................... 45 SECTION 8.04. TRUSTEE'S DISCLAIMER. ..................................... 45 SECTION 8.05. NOTICE OF DEFAULTS. ....................................... 45 SECTION 8.06. COMPENSATION AND INDEMNIFICATION OF TRUSTEE. .............. 45 SECTION 8.07. ELIGIBILITY OF TRUSTEE. ................................... 45 SECTION 8.08. REPLACEMENT OF TRUSTEE. ................................... 46 SECTION 8.09. DUTIES OF REMARKETING AGENT................................. 47 SECTION 8.10. ELIGIBILITY OF REMARKETING AGENT; REPLACEMENT. ............ 47 SECTION 8.11. DUTIES OF PLACEMENT AGENT................................... 48 SECTION 8.12. ELIGIBILITY OF PLACEMENT AGENT; REPLACEMENT. .............. 48 SECTION 8.13. APPOINTMENT OF AND DUTIES OF PAYING AGENT. ............... 49 SECTION 8.14. QUALIFICATIONS OF PAYING AGENT; RESIGNATION; REMOVAL. ..... 49 SECTION 8.15. SUCCESSOR TRUSTEE, PAYING AGENT OR REMARKETING AGENT BY MERGER ................................................ 50 SECTION 8.16. TRUSTEE'S COVENANT AS TO BANK NOTES. ...................... 50 SECTION 8.16. TRUSTEE AND PAYING AGENT AS ONE ENTITY. ................... 51 ARTICLE IX AMENDMENTS OF AGREEMENT SECTION 9.01. WITHOUT CONSENT OF NOTEHOLDERS. ........................... 52 SECTION 9.02. WITH CONSENT OF NOTEHOLDERS. .............................. 53 SECTION 9.03. EFFECT OF CONSENTS. ....................................... 53 SECTION 9.04. NOTATION ON OR EXCHANGE OF SERIES A NOTES. ................ 53 SECTION 9.05. SIGNING BY TRUSTEE OF AMENDMENTS. ......................... 53 SECTION 9.06. BANK AND REMARKETING AGENT CONSENT REQUIRED. ............. 54 ii 4 SECTION 9.07. NOTICE TO NOTEHOLDERS. .................................... 54 ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES.................................................... 55 SECTION 10.02. NOTEHOLDERS' CONSENTS. ................................... 56 SECTION 10.03. NOTICES TO RATING AGENCY. ................................ 57 SECTION 10.04. LIMITATION OF RIGHTS. .................................... 57 SECTION 10.05. SEVERABILITY. ............................................ 57 SECTION 10.06. PAYMENTS DUE ON NON-BUSINESS DAYS. ....................... 58 SECTION 10.07. GOVERNING LAW. ........................................... 58 SECTION 10.08. COUNTERPARTS. ............................................ 58 SECTION 10.09. BINDING EFFECT. .......................................... 59 EXHIBIT A - FORM OF SERIES A NOTE.......................................... A-1 EXHIBIT B - NOTICE OF MANDATORY REPURCHASE................................. B-1 iii 5 SERIES A NOTE AGREEMENT THIS SERIES A NOTE AGREEMENT dated as of November 9, 1994 between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and NORWEST BANK MINNESOTA, N.A., a national banking association organized under the laws of the United States of America and having its principal office in Minneapolis, Minnesota (the "Trustee"), as trustee of the Series A Letter of Credit (hereinafter defined) and as Paying Agent (hereinafter defined) for the Series A Notes (hereinafter defined); W I T N E S S E T H: WHEREAS, the Borrower intends to issue and sell its interest bearing flexible term notes in substantially the form of Exhibit A attached hereto (the "Series A Notes"; individually, a "Series A Note") in an aggregate principal amount not to exceed Ten Million Dollars ($10,000,000) (the "Series A Facility Amount"), and to use the proceeds from such issuance and sale (together with the proceeds from the issuance and sale of a subsequent series of notes) to refinance and/or finance certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower, located in San Francisco, California (the "Project"); and WHEREAS, the payment when due of the principal of, interest on and Purchase Price (hereinafter defined) of the Series A Notes will be supported, to the extent provided therein, by the Series A Letter of Credit issued in favor of the Trustee by the Bank (hereinafter defined) in the initial amount of $10,145,833, representing the Series A Facility Amount (hereinafter defined) plus 35 days interest on such amount computed at the Maximum Rate (hereinafter defined), on the basis of actual number of days elapsed in a year of 360 days, all pursuant to and as more fully set forth in the Reimbursement Agreement (hereinafter defined); and WHEREAS, the Borrower has requested that the Trustee act (i) hereunder for the benefit of the Noteholders (hereinafter defined) to perform certain services in connection with the issuance, authentication and delivery of, the registration, transfer and exchange of, and the payment of principal, interest and Purchase Price with respect to the Series A 6 Notes issued hereunder and (ii) as the custodian of the Series A Letter of Credit for the benefit of the Noteholders, and the Trustee is willing to accept such appointments and perform such services on the terms and subject to the conditions set forth herein; and WHEREAS, the Borrower has requested that NationsBank of North Carolina, N.A. act as its agent hereunder to perform certain services in connection with the placement of the Series A Notes upon issuance thereof, and NationsBank of North Carolina, N.A. is willing to accept such appointment and perform such services on the terms and subject to the conditions set forth herein and in the Placement Agreement (hereinafter defined); and WHEREAS, the Borrower has requested that NationsBank of North Carolina, N.A. act as its agent hereunder to perform certain services in connection with the remarketing of Series A Notes tendered for purchase and the determination of the interest rates and interest periods with respect to the Series A Notes, and NationsBank of North Carolina, N.A. is willing to accept such appointment and perform such services on the terms and subject to the conditions set forth herein and in the Remarketing Agreement (hereinafter defined); and WHEREAS, the Borrower and the Trustee desire to set forth certain of the terms and conditions with respect to the issuance of the Series A Notes; NOW, THEREFORE, the parties hereto agree as follows: 2 7 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION SECTION 1.01. DEFINITIONS. For all purposes of this Agreement, unless the context requires otherwise, the following terms shall have the following meanings: "AFFILIATE" means singularly and collectively, any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, the Borrower, and the legal representative, successor or assign of any such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" the Borrower if the Borrower possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. "AGREEMENT" means this Series A Note Agreement, as it may be amended from time to time in accordance with its terms. "AUTHORIZED DENOMINATIONS" means with respect to all Series A Notes $100,000 or any integral multiple of $100,000 in excess thereof. "BALANCE CERTIFICATE AGREEMENT" means the Balance Certificate Agreement dated as of the date hereof between the Trustee, as transfer agent, and DTC, as Securities Depository, governing the mechanisms for the registration of transfer of the Series A Notes while the Series A Notes are held pursuant to a book-entry system maintained by DTC. "BANK" means the issuer of the Series A Letter of Credit, initially NationsBank of North Carolina, N.A. and upon the issuance and delivery of a Substitute Series A Letter of Credit, shall mean the issuer of such Substitute Series A Letter of Credit. "BANK NOTES" means any Series A Notes purchased with proceeds from a draw under the Series A Letter of Credit and pledged to the Bank under the Reimbursement Agreement, including, in the event a book-entry system with respect to the Series A Notes is in effect, any beneficial ownership interest therein; provided that in the event that the Bank fails to honor a drawing under the Series A Letter of Credit to fund such a purchase and the Borrower purchases such Series A Notes with its own funds, "Bank Notes" shall include such Series A Notes except that such Series A Notes shall not be pledged to the Bank under the Reimbursement Agreement. 3 8 "BANKRUPTCY COUNSEL" means any counsel nationally recognized in bankruptcy matters which is independent of the Borrower and is reasonably acceptable to the Trustee. "BENEFICIAL OWNER" or "BENEFICIAL OWNER" means the holder of the beneficial ownership interest in each Series A Note as evidenced on (i) if such Series A Note is held pursuant to a book-entry system, the books maintained by the Securities Depository (and, as applicable, its participants or persons acting through such participants), as more fully described in the Letter of Representations, or (ii) if such Series A Note is not held pursuant to a book-entry system, the register maintained by the Paying Agent. "BORROWER" means Hanover Direct, Inc., a Delaware corporation, and any successor thereto. "BORROWER REPRESENTATIVE" means a Person at the time designated to act on behalf of the Borrower by a written instrument furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Borrower by such Person's President, any Executive Vice President, any Senior Vice President, any Vice President or the Chairman of such Person's Board of Directors, or, in the case of a Person other than a corporation, the person or persons having comparable positions or roles. The certificate may designate an alternate or alternates. "BUSINESS DAY" means any day other than (a) a Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or in the city or cities in which the corporate trust office of the Trustee or the Paying Agent, the primary office of the Remarketing Agent or the Placement Agent or the paying office of the Bank are authorized by law or executive order to close or (c) a day on which the New York Stock Exchange is closed. For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series A Letter of Credit. "CEDE & CO." means Cede & Co., the nominee of DTC or any successor nominee of DTC with respect to the Series A Notes. "CREDIT MODIFICATION" means and shall be deemed to occur upon the acceptance of a Substitute Series A Letter of Credit by the Trustee if (a) as a result of such acceptance, the rating then assigned to the Series A Notes by any Rating Agency then rating the Series A Notes would be lowered or eliminated or (b) in the event the Series A Notes are not then rated, the issuer of such Substitute Series A Letter of Credit has (i) senior debt or long-term bank deposits which are rated by a Rating Agency at a lower rating than the rating then assigned to the senior debt or long-term bank deposits of the issuer of the expiring Series A 4 9 Letter of Credit, or (ii) outstanding letters of credit or other similar instruments supporting debt obligations which are rated by a Rating Agency at a lower rating than the rating assigned to debt obligations supported with letters of credit or similar instruments issued by the issuer of the expiring Series A Letter of Credit. "DATE OF ISSUANCE" means the date upon which the Series A Notes are issued, authenticated and delivered in accordance with Section 2.06. "DTC" means The Depository Trust Company, a limited purpose company organized under the laws of the State of New York, and its successors and assigns. "EVENT OF DEFAULT" is defined in Section 7.01. "INTEREST PAYMENT DATE" means the first day after the last day of each Interest Period. "INTEREST PERIOD" means, with respect to any Series A Note, each period of between one (1) and one hundred eighty (180) days established from time to time in accordance with Section 2.02(a). "INTEREST RATE" means, with respect to any Series A Note, the term, nonvariable interest rate on such Series A Note established from time to time in accordance with Section 2.02(a). In no event shall the Interest Rate exceed the Maximum Rate. "INTEREST RESERVE ACCOUNT" means the Interest Reserve Account of the Series A Letter of Credit Fund created by Section 4.02. "LETTER OF REPRESENTATIONS" has the meaning given to that term in Section 2.07. "MATURITY DATE" means October 1, 2009. "MAXIMUM RATE" means the lesser of (a) the highest interest rate which may be borne by the Series A Notes under State law and (b) fifteen percent (15%) per annum. "NOTICE OF MANDATORY PURCHASE" means that notice required to be prepared and given by the Trustee pursuant to Section 3.07. "OFFERING MEMORANDUM" means, collectively, the Preliminary Private Placement Memorandum of the Borrower dated October 25, 1994 and the Private Placement Memorandum of the Borrower dated as of the date of the initial issuance of Series A Notes hereunder, each prepared in connection with the initial offering of the Series A Notes, as the same may be amended or supplemented. 5 10 "OPINION OF COUNSEL" means a written opinion of counsel who is reasonably acceptable to the Trustee, the Bank, the Placement Agent and the Remarketing Agent. The counsel may be an employee of or counsel to the Borrower, the Placement Agent, the Remarketing Agent, the Bank or the Trustee. "OUTSTANDING" when used with reference to Series A Notes means all Series A Notes which have been authenticated and delivered by the Paying Agent under this Agreement, except the following: (a) Series A Notes cancelled, or purchased by or delivered to the Paying Agent for cancellation, pursuant to the provisions of this Agreement; (b) Series A Notes that have become due (at maturity or on redemption, acceleration or otherwise) and for the payment of which, including interest accrued to the due date, sufficient moneys are held by the Paying Agent; and (c) Series A Notes in lieu of which others have been authenticated under Section 2.05 (relating to registration and exchange of Series A Notes) or Section 2.08 (relating to mutilated, lost, stolen, destroyed or undelivered Series A Notes). "OWNER", "OWNERS", "NOTEHOLDER" "NOTEHOLDER", "HOLDER", "HOLDER" or words of similar import means: (a) in the event that the book-entry system of evidence and transfer of ownership of the Series A Notes is employed pursuant to Section 2.07, the Securities Depository Nominee, and (b) in all other cases, the registered owner or owners of any Series A Note as shown on the register maintained by the Paying Agent. "PARTICIPANTS" means securities brokers and dealers, banks, trust companies and clearing corporations which have access to the Securities Depository's system. "PAYING AGENT" shall mean the issuing and paying agent with respect to the Series A Notes, initially Norwest Bank Minnesota, N.A. "PERMITTED INVESTMENTS" means: (i) investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America or any agency or instrumentality thereof; provided, that such obligations mature within one year from the date of acquisition thereof; (ii) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States of America or any state thereof having capital surplus and undivided 6 11 profits aggregating at least $100,000,000 and having ratings from each Rating Agency then rating the Series A Notes at least equivalent to each such Rating Agency's then current rating on the Series A Notes and which are fully secured by obligations described in paragraph (i) above; and (iii) investments in money-market instruments rated by each Rating Agency then rating the Series A Notes at least equivalent to each such Rating Agency's then current rating on the Series A Notes. "PERSON" means (a) any individual, (b) any corporation, partnership, joint venture, association, joint-stock company, business trust or unincorporated organization, or grouping of any such entities, in each case formed or organized under the laws of the United States of America, any state thereof or the District of Columbia or (c) the United States of America or any state thereof, or any political subdivision of either thereof, or any agency, authority or other instrumentality of any of the foregoing. "PLACEMENT AGENT" means initially NationsBank of North Carolina, N.A. and any successor agent or agents appointed from time to time pursuant to Section 8.12. "PLACEMENT AGREEMENT" means the Placement Agreement dated as of November 9, 1994, between the Borrower and the Placement Agent with respect to the placement of the Series A Notes upon issuance thereof, and any and all modifications, alterations, amendments and supplements thereto. "PROJECT" means the refinancing and/or financing of certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California.. "PURCHASE DATE" means, with respect to any Series A Notes, the date on which such Series A Notes are required to be purchased pursuant to Section 3.07(a). "PURCHASE PRICE" means an amount equal to 100% of the principal amount of any Series A Note tendered or deemed tendered to the Trustee for purchase pursuant to Section 3.07 hereof, plus accrued and unpaid interest thereon to, but excluding, the Purchase Date. "RATING AGENCY" means Moody's Investors Service, Inc., if such agency's ratings are in effect with respect to the Series A Notes, and Standard & Poor's Ratings Group, if such agency's ratings are in effect with respect to the Series A Notes, and their respective successors and assigns. If either such corporation ceases to act as a securities rating agency, the Borrower may, with the approval of the Placement Agent, the 7 12 Remarketing Agent and the Bank, appoint any nationally recognized securities rating agency as a replacement. "RECORD DATE" means, with respect to each Interest Payment Date, the Trustee's close of business on the Business Day next preceding such Interest Payment Date. "REIMBURSEMENT AGREEMENT" means (a) the Credit Facilities and Reimbursement Agreement dated as of October 12, 1994, by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as Agent, pursuant to which, among other things, the Series A Letter of Credit is issued by the Bank and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto and (b) any similar agreement between the Borrower and the issuer of a Substitute Series A Letter of Credit. "REMARKETING AGENT" means initially NationsBank of North Carolina, N.A. and any successor agent or agents appointed from time to time pursuant to Section 8.10. "REMARKETING AGREEMENT" means (a) the Remarketing and Interest Services Agreement dated as of November 9, 1994, between the Remarketing Agent and the Borrower, with respect to the remarketing of the Series A Notes and the determination of interest rates and interest periods for the Series A Notes, and any and all modifications, alterations, amendments and supplements thereto and (b) any agreement between the Borrower and any successor remarketing agent appointed pursuant to Section 8.10. "REMARKETING PROCEEDS" means funds received from purchasers (other than the Borrower or any Affiliate) of Series A Notes which have been remarketed by the Remarketing Agent as payment for such Series A Notes. "RESPONSIBLE OFFICER" means, when used with respect to the Trustee or the Paying Agent, any officer within the Corporate Trust Division (or any successor group of the Trustee or the Paying Agent) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee or the Paying Agent customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively. "SECURITIES DEPOSITORY" means, initially, DTC, or any successor or substitute securities depository selected by the Borrower (with the consent of the Trustee and the Remarketing Agent), which shall maintain a book-entry system in respect of the Series A Notes. "SECURITIES DEPOSITORY NOMINEE" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the register maintained by the Paying Agent the Series A Note 8 13 certificate to be delivered to and immobilized with the Paying Agent during continuation with such Securities Depository of participation in its book-entry system, and shall initially be Cede & Co. "SERIES A FACILITY AMOUNT" means $10,000,000, being the maximum aggregate principal amount of Series A Notes that may be issued hereunder. "SERIES A LETTER OF CREDIT" means an irrevocable letter of credit having the characteristics of a "credit" or "letter of credit" set forth in Section 5-103 of the Uniform Commercial Code of the State of North Carolina (or, in the case of a Substitute Series A Letter of Credit, Section 5-103 of the Uniform Commercial Code of the state under whose laws such Substitute Series A Letter of Credit is governed) except that a Series A Letter of Credit (a) may not be revocable and (b) may only be issued by (i) a national bank, (ii) any banking institution organized under the laws of any state, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the state or territorial banking commission or similar officials or (iii) a branch or agency of a foreign bank, provided that the nature and extent of federal and/or state regulation and the supervision of the particular branch or agency is substantially equivalent to that applicable to federal or state chartered domestic banks doing business in the same jurisdiction and which meets the requirements of Section 5.01. Initially, the term "Series A Letter of Credit" shall mean the irrevocable letter of credit issued by the Bank to the Trustee in accordance with Section 5.01, supporting the payment of the principal of, interest on and Purchase Price of the Series A Notes, including any permitted supplements or amendments and any renewals or extensions thereof, and, upon the expiration or termination of the Series A Letter of Credit and the issuance and delivery of a Substitute Series A Letter of Credit meeting the requirements set forth in this paragraph and in Sections 5.01 and 5.03, "Series A Letter of Credit" shall mean such Substitute Letter of Credit. "SERIES A LETTER OF CREDIT FUND" means the Series A Letter of Credit Fund created by Section 4.02. "SERIES A NOTE DOCUMENTS" mean the Series A Note, the Series A Note Agreement, the Series A Letter of Credit, the Placement Agreement, the Remarketing Agreement and the Reimbursement Agreement. "STATE" means the State of New York. "SUBSTITUTE SERIES A LETTER OF CREDIT" shall have the meaning set forth in Section 5.03. "TRUSTEE" means the entity identified as such in the heading of this Agreement and such entity's successors under this Agreement. 9 14 SECTION 1.02. RULES OF CONSTRUCTION. Unless the context otherwise requires, (a) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles applied on a consistent basis; (b) references to Articles and Sections are to the Articles and Sections of this Agreement; (c) terms defined elsewhere in this Agreement shall have the meanings therein prescribed for them; (d) words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders; (e) headings used in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof; (f) each reference herein or in the Series A Notes to a percentage of Series A Notes required for notices, consents or for any other reason shall be deemed to refer to Series A Notes then Outstanding; and (g) all references herein to time shall be Charlotte, North Carolina time unless otherwise expressly stated. END OF ARTICLE I 10 15 ARTICLE II THE SERIES A NOTES SECTION 2.01. AUTHORIZATION OF SERIES A NOTES; FORM OF SERIES A NOTES; DETAILS OF SERIES A NOTES. (a) AUTHORIZATION OF SERIES A NOTES; FORM OF SERIES A NOTES. The Borrower hereby authorizes and creates under this Series A Note Agreement an issue of Series A Notes to be designated "Hanover Direct, Inc. Flexible Term Notes, Series A." The total principal amount of Series A Notes that may be issued and outstanding hereunder shall not exceed the Series A Facility Amount (except as provided in Section 2.08 with respect to replacement of mutilated, lost, stolen, destroyed or undelivered Series A Notes). The Series A Notes are issuable in registered form without coupons in Authorized Denominations only, and shall be substantially in the form of Exhibit A to this Agreement, with appropriate variations, omissions, insertions, notations, legends or endorsements required by law or usage or permitted or required by this Agreement. The Series A Notes may be in printed or typewritten form. No Series A Notes may be issued under the provisions of this Agreement except in accordance with this Article. (b) DETAILS OF SERIES A NOTES. Each Series A Note will be dated the date of its original authentication and delivery hereunder and all Series A Notes shall mature, subject to prior redemption or repurchase, on the Maturity Date. Interest on each Series A Note shall be computed from the Interest Payment Date applicable to such Series A Note next preceding the date of authentication thereof, unless such authentication date (i) is prior to the first Interest Payment Date following the initial delivery of the Series A Notes, in which case interest shall be computed from such initial delivery date, or (ii) is an Interest Payment Date, in which case interest shall be computed from such authentication date; provided, that if interest on the Series A Notes is in default, Series A Notes shall bear interest from the last date to which interest has been paid. The principal and Purchase Price of and interest on the Series A Notes shall be payable in lawful currency of the United States of America. The principal and Purchase Price of the Series A Notes shall be payable at the principal corporate trust office of the Paying Agent upon presentation and surrender of such Series A Notes as the same shall become due and payable. Payments of interest on the Series A Notes will be mailed, except as otherwise provided herein, to the persons in whose names the Series A Notes are registered on the register of the Paying Agent at the close of business on the Record Date next preceding each Interest Payment Date, including, when a book-entry system is in 11 16 effect with respect to some or all of the Series A Notes, Persons, including the Participants, who are registered as owning beneficial interests in the Series A Notes on the registration books of the Securities Depository; provided that, any Holder (or beneficial owner, if Series A Notes are held under a book-entry system) of a Series A Note or Series A Notes in an aggregate principal amount of not less than $500,000 may, by prior written instructions filed with the Paying Agent (which instructions shall remain in effect until revoked by subsequent written instructions), instruct that interest payments for any period be made by wire transfer to an account in the continental United States or other means acceptable to the Paying Agent. Series A Notes will be numbered from 1 upward as determined by the Trustee and will contain the designation "R." SECTION 2.02. INTEREST ON THE SERIES A NOTES. The Series A Notes will bear interest as herein provided from the date thereof until paid in full. Interest accrued on each Series A Note shall be paid on the applicable Interest Payment Date therefor. The Interest Rate on the Series A Notes will be determined as provided in this Section 2.02; provided that the Interest Rate shall not exceed the Maximum Rate. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed over a year of 360 days. (a) INTEREST PERIOD AND INTEREST RATE DETERMINATION METHOD. There shall be established and reestablished for each of the Series A Notes an Interest Period, and each of the Series A Notes shall bear interest at the Interest Rate for such Series A Note during the applicable Interest Period. The Interest Period and corresponding Interest Rate for each Series A Note shall be determined by the Remarketing Agent initially no later than the first day of the Interest Period and thereafter on the first day of each succeeding Interest Period or on a Business Day selected by the Remarketing Agent not more than five Business Days prior to the first day of such succeeding Interest Period. Each Interest Period for any Series A Note shall be a period, not less than one (1) nor more than one hundred eighty (180) days, determined by the Remarketing Agent in its sole discretion to be the period which, together with all other Interest Periods for all Series A Notes then Outstanding, will result in the lowest overall interest expense on the Series A Notes over the next succeeding one hundred eighty (180) days; provided, however, that: (i) each Interest Period shall end on a day which immediately precedes a Business Day, or on the day prior to the Maturity Date; (ii) if the Remarketing Agent shall not have determined an Interest Period for any Series A Note or if for any 12 17 reason an Interest Period for any Series A Note determined by the Remarketing Agent shall be held to be invalid or unenforceable by a court of law, such Interest Period shall have seven days or, if the last day of such Interest Period would fall on or after the Maturity Date, such Interest Period shall end on the day preceding the Maturity Date; (iii) no Interest Period shall extend beyond the fifth (5th) Business Day prior to the stated expiration date of the Series A Letter of Credit or Substitute Series A Letter of Credit then in effect, unless a Substitute Series A Letter of Credit, which will not result in a Credit Modification has been timely delivered and accepted by the Trustee pursuant to the terms of Section 5.03; (iv) if, pursuant to Section 5.03(a)(iii), the Remarketing Agent has approved a Substitute Series A Letter of Credit which will result in a Credit Modification, no Interest Period commencing prior to the effective date of such Substitute Series A Letter of Credit shall extend beyond the effective date of such Substitute Series A Letter of Credit; and (v) in the event any Series A Note is purchased with the proceeds from a draw under the Series A Letter of Credit, the Interest Period for such Series A Note will be determined for successive one-day terms until such Series A Note is remarketed and released by the Bank in accordance with Section 3.08(d)(ii). In determining the number of days in each Interest Period, the Remarketing Agent shall take into account the following factors: (1) all other Interest Periods for all of the Series A Notes, (2) general economic and market conditions relevant to the Series A Notes, (3) optional redemption dates, the notice of which it has been given, (4) the date and principal amount of any mandatory sinking fund redemption pursuant to Section 3.01(b), notice of which has been provided to the Remarketing Agent by the Trustee pursuant to Section 3.01(b)(ii), and (5) such other facts, circumstances and conditions as the Remarketing Agent determines in its sole discretion to be relevant. The Interest Rate for each Interest Period for each Series A Note shall be the minimum rate of interest which, in the opinion of the Remarketing Agent, would be necessary to sell the Series A Note on such date of determination in a secondary market sale at the principal amount thereof. If the Remarketing Agent shall not have determined an Interest Rate with respect to any or all of the Series A Notes, the Interest Rate for such Series A Notes shall be identical to the immediately preceding Interest Rate for such Series A Notes. If for any reason an Interest Rate determined by the Remarketing Agent for any Interest Period shall be held to be invalid or unenforceable by a court of law, the 13 18 Interest Rate for such Interest Period shall be a rate per annum equal to 125% of the rate published in the most recent edition of The Bond Buyer for 30-day prime commercial paper or, if The Bond Buyer no longer publishes such information, such other publication or provider of such information as the Remarketing Agent shall select. (b) NOTIFICATION OF INTEREST PERIOD AND INTEREST RATE; CALCULATION OF INTEREST. The Remarketing Agent will notify the Paying Agent in writing (which may be in telecopy form) or by telephone promptly confirmed in writing by 10:00 a.m. on the first Business Day of each Interest Period with respect to any Series A Note, of the identity of such Series A Note, the length of such Interest Period, the Interest Rate therefor and the principal amount of such Series A Note, and, upon the request of the Borrower or the Bank, the Paying Agent shall promptly (but in no event later than the end of such Business Day) after its receipt of such information, forward such information to the Borrower and the Bank. The failure by the Remarketing Agent or the Paying Agent, as applicable, to give any such notice shall not affect the change in the Interest Period and/or Interest Rate. Using the Interest Rates and Interest Periods supplied by the Remarketing Agent, the Trustee will (i) calculate the amount of interest payable on the Series A Notes and (ii) take action as set forth in Section 5.02 such that timely payment of such interest is made under Section 4.02. The establishment of the Interest Rates and the Interest Periods as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders. The calculation of interest payable on the Series A Notes as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders, absent manifest error. (c) NO LIABILITY. Neither the Remarketing Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Trustee, the Paying Agent, the Placement Agent, the Bank or any Noteholder for any action taken or not taken by the Remarketing Agent or any of its directors, officers, agents or employees in connection with the determination of the Interest Period and Interest Rate for each Series A Note pursuant to this Section 2.02, in the absence of its own negligence or willful misconduct. SECTION 2.03. EXECUTION AND AUTHENTICATION. The Series A Notes will be signed on behalf of the Borrower by the manual or facsimile signatures of the President, any Executive Vice President, any Senior Vice President, any Vice President or 14 19 Treasurer of the Borrower, attested by the manual or facsimile signatures of the Borrower's Secretary or Assistant Secretary, and the seals of the Borrower will be impressed or imprinted on the Series A Notes by facsimile or otherwise. If an officer of the Borrower whose signature is on a Series A Note no longer holds that office at the time the Trustee authenticates the Series A Note, the Series A Note shall nevertheless be valid. If a person signing a Series A Note is the proper officer on the actual date of execution, the Series A Note shall be valid even if that person is not the proper officer on the nominal date of action. A Series A Note shall not be valid for any purpose under this Agreement unless and until the Paying Agent manually signs the certificate of authentication on the Series A Note, and such signature shall be conclusive evidence that the Series A Note has been authenticated under this Agreement. SECTION 2.04. SERIES A NOTE REGISTER. The Paying Agent shall keep a register of Series A Notes and of their transfer and exchange. Except as otherwise provided in Section 2.07, Series A Notes must be presented at the principal corporate trust office of the Paying Agent for registration, transfer and exchange, and Series A Notes may be presented at that office for payment. SECTION 2.05. REGISTRATION AND EXCHANGE OF SERIES A NOTES; PERSONS TREATED AS OWNERS. (a) Except as otherwise provided in Section 2.07, Series A Notes may be transferred only on the register maintained by the Paying Agent. Upon surrender for transfer of any Series A Note to the Paying Agent, duly endorsed for transfer or accompanied by an assignment duly executed by the holder or the holder's attorney duly authorized in writing and in either case, with an appropriate guarantee of signature conforming to the requirements of Exhibit A attached hereto, the Paying Agent will authenticate a new Series A Note or Series A Notes in an equal total principal amount and registered in the name or names of the transferee or transferees. Series A Notes may be exchanged for an equal total principal amount of Series A Notes of different Authorized Denominations. The Paying Agent will authenticate and deliver Series A Notes that the Noteholder making the exchange is entitled to receive, bearing numbers not then outstanding. The Paying Agent will not be required to transfer or exchange any Series A Note during the period beginning two (2) days before the mailing of notice calling the Series A Note or any portion of the Series A Note for redemption and ending on the redemption date. Series A Notes subject to redemption or mandatory purchase may be transferred or exchanged only if the 15 20 Paying Agent provides the new holder thereof with a copy of the notice of redemption or mandatory purchase, as the case may be. The holder of a Series A Note as shown on the register of the Paying Agent shall be the absolute owner of the Series A Note for all purposes, and payment of principal, interest or Purchase Price shall be made only to or upon the written order of such holder or the holder's legal representative; provided that interest shall be paid to the Person shown on the register as a holder of a Series A Note on the applicable Record Date. (b) The Paying Agent may require the payment by a Noteholder requesting exchange or registration of transfer of any tax or other governmental charge required to be paid in respect of the exchange or registration of transfer but will not impose any other charge. SECTION 2.06. AUTHORIZATION OF SERIES A NOTES. (a) AUTHORIZATION OF SERIES A FACILITY AMOUNT AND ISSUANCE OF SERIES A NOTES. The Borrower hereby requests and authorizes the issuance, authentication and delivery under this Agreement of Series A Notes in the aggregate principal amount of $10,000,000, said Series A Notes to be dated November 9, 1994. The Series A Notes shall be executed substantially in the form and in the manner hereinabove set forth and shall be deposited with the Paying Agent for authentication, but before the Series A Notes shall be delivered by the Paying Agent, there shall be filed or deposited with the Trustee the following: (1) a copy, certified by the secretary or assistant secretary of the Borrower of a resolution of the board of directors or executive committee of the board of directors of the Borrower, authorizing (I) the execution and delivery of this Agreement, (II) the execution, delivery, issuance and sale of Series A Notes in an aggregate principal amount not to exceed the Series A Facility Amount, and (III) the use by the Placement Agent and the Remarketing Agent of the Offering Memorandum; (2) the Series A Letter of Credit, in an amount not less than $10,145,833, representing the Series A Facility Amount plus 35 days' interest on such amount computed at the Maximum Rate on the basis of actual number of days elapsed in a year of 360 days; (3) original executed counterparts of this Agreement, the Placement Agreement and the Remarketing Agreement; (4) an executed copy of the Reimbursement Agreement, certified by the Secretary of the Borrower to be a true, correct and complete copy of the original thereof; 16 21 (5) the written opinion of Whitman Breed Abbott & Morgan, counsel to the Borrower, addressed to the Trustee, the Bank, the Placement Agent and the Remarketing Agent, to the effect that (I) the issuance of the Series A Notes has been duly authorized by the Borrower, (II) the Series A Notes have been duly executed and delivered by the Borrower, (III) this Agreement is enforceable and of binding effect against the Borrower in accordance with its terms under State law, (IV) the Remarketing Agreement and the Placement Agreement are enforceable against the Borrower in accordance with their respective terms assuming the law of the state of North Carolina is identical State law, (V) nothing has come to their attention that would lead them to believe that the information concerning the Borrower contained in the Offering Memorandum contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, and (VI) the Series A Notes are not subject to registration under the Securities Act of 1933, as amended, and otherwise in form and substance satisfactory to the Trustee and the Remarketing Agent; (6) an Opinion of Counsel to the Bank addressed to the Trustee, or upon which the Trustee may rely, to the effect that the Series A Letter of Credit is a binding and valid obligation of the Bank and is not subject to registration under the Securities Act of 1933, as amended; (7) an authorization request from the Borrower to authenticate and deliver $10,000,000 aggregate principal amount of the Series A Notes in specified Authorized Denominations to the initial purchaser or purchasers upon payment to the Placement Agent of the Purchase Price for such principal amount of Series A Notes; and (8) such other documentation, certificates and assurances as may reasonably be required by the Bank, the Paying Agent, the Remarketing Agent or the Placement Agent or their respective counsel. When the documents referred to in paragraphs (1) through (8), inclusive, of this subsection (a) have been filed with the Trustee, the Paying Agent shall authenticate the Series A Notes issued under this subsection (a) and the Trustee shall deliver such executed and authenticated Series A Notes to the purchaser or purchasers thereof as directed by the Borrower. (b) LIMITATIONS ON THE ISSUANCE OF SERIES A NOTES. Notwithstanding any other provision of this Article II, the Paying Agent shall not authenticate and deliver Series A Notes (i) on any day on which the Trustee is to receive payment from the Bank in respect of a drawing under the Series A Letter of Credit until after the Trustee has received such payments in an 17 22 amount equal to the amount of such drawing; (ii) if the issuance of such Series A Notes would, after giving effect to such issuance, cause the aggregate principal amount of all Series A Notes issued and Outstanding pursuant to this Article II to exceed the Series A Facility Amount; (iii) on or after a date which is five (5) days prior to the Maturity Date; (iv) on or after any date on which the Trustee has delivered a notice of mandatory redemption pursuant to Section 3.01(c) and until the Series A Letter of Credit is extended or a Substitute Series A Letter of Credit has been provided; (v) on any date as of which an Event of Default has occurred and is continuing and of which the Trustee has received notice or is deemed to have received notice as provided in Section 8.05; (vi) on and after the date as of which the Trustee has been notified that the Placement Agent has resigned or been removed (as provided in Section 8.12) and until a successor Placement Agent has delivered its acceptance of its appointment to the Trustee; and (vii) on and after the date as of which the Trustee has been notified that the Remarketing Agent has resigned or been removed (as provided in Section 8.10) and until a successor Remarketing Agent has delivered its acceptance of its appointment to the Trustee. Notwithstanding any other provision of this Agreement to the contrary, the Paying Agent shall not authenticate and deliver Series A Notes if prior to any proposed issuance date or by 10:00 on such date the Trustee receives a written notice from the Bank that the conditions precedent to an issuance of additional Series A Notes, as provided in Section 6.02 of the Reimbursement Agreement, have not been met. (c) SERIES A NOTE PROCEEDS. All proceeds from the sale of Series A Notes issued hereunder shall be paid on the Date of Issuance by the Placement Agent to the Paying Agent and, upon receipt thereof, the Paying Agent shall promptly pay such proceeds to or at the direction of the Borrower on such date. SECTION 2.07. BOOK-ENTRY SYSTEM; RECORDING AND TRANSFER OF OWNERSHIP OF THE SERIES A NOTES. (a) Initially, all of the Series A Notes shall be held by means of a book-entry system administered by the Securities Depository. One Series A Note certificate in registered form will be issued for the Series A Notes in the aggregate principal amount of $10,000,000, and will be registered in the name of the Securities Depository Nominee and will be deposited with the Paying Agent. Thereafter, in the event that Series A Notes are issued to the Beneficial Owners thereof in certificated (physical) form (and in each and every case thereafter in which a change in the principal amount of Series A Notes held pursuant to a book-entry system is made), the Paying Agent will take all actions necessary to comply with the Balance Certificate Agreement dated as of the date hereof between Norwest Bank Minnesota, N.A., as transfer agent, and the Securities 18 23 Depository, which Agreement governs the mechanisms for the registration of transfer of Series A Note certificates registered in the name of the Securities Depository Nominee. (b) With respect to any Series A Notes that are held by means of a book-entry system, such book-entry system will evidence beneficial ownership of the Series A Notes so held in Authorized Denominations (or, as applicable, positions held by the Participants, beneficial ownership being evidenced in the records of such Participants). Registration and transfers of ownership shall be effected on the records of the Securities Depository and the Participants, as applicable, pursuant to rules and procedures established by the Securities Depository and the Participants. Subject to the provisions of Section 7.09, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series A Notes, (ii) notices and (iii) voting. Transfer of principal, interest and Purchase Price payments to beneficial owners of the Series A Notes so held will be the responsibility of the Securities Depository and the Participants. The Borrower, the Trustee, the Bank and the Paying Agent will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by the Securities Depository, the Securities Depository Nominee or the Participants. While the Securities Depository Nominee is the owner of the Series A Notes so held, notwithstanding the provision hereinabove contained, payments of principal and Purchase Price of and interest on such Series A Notes shall be made in accordance with the terms of the Letter of Representations dated as of November 9, 1994 (the "Letter of Representations") among the Borrower, the Trustee, the Remarketing Agent and the Paying Agent (as issuing agent and paying agent thereunder) and received and accepted by the Securities Depository. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE OF OWNERSHIP IS MAINTAINED IN ACCORDANCE HEREWITH FOR ANY SERIES A NOTES, (1) THE PROVISIONS OF THIS AGREEMENT RELATING TO THE DELIVERY OF PHYSICAL SERIES A NOTES SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED WITH REGARD TO SUCH SERIES A NOTES AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM AND (2) THE PROVISIONS OF THIS AGREEMENT RELATING TO ISSUANCE, PAYMENTS OF PRINCIPAL, PURCHASE PRICE AND INTEREST, AND ESTABLISHMENT OF INTEREST RATES AND INTEREST PERIODS WITH RESPECT TO THE SERIES A NOTES SHALL BE APPLICABLE TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES A NOTES IN AUTHORIZED DENOMINATIONS TO THE SAME EXTENT AS SUCH PROVISIONS ARE APPLICABLE TO REGISTERED OWNERSHIP INTERESTS IN THE SERIES A NOTES. 19 24 SECTION 2.08. MUTILATED, LOST, STOLEN, DESTROYED OR UNDELIVERED SERIES A NOTES. (a) If any Series A Note is mutilated, lost, stolen or destroyed, the Paying Agent will authenticate a new Series A Note of the same denomination , provided that, with respect to any mutilated Series A Note, such Series A Note shall first be surrendered by the Noteholder to the Trustee at its principal corporate trust office, and with respect to any lost, stolen or destroyed Series A Note, there shall first be furnished to the Borrower, the Trustee, the Paying Agent and the Bank, evidence of such loss, theft or destruction, together with an indemnity from the Noteholder, satisfactory to them. If the Series A Note has matured and if the evidence and indemnity described above have been provided by the Noteholder, instead of issuing a duplicate Series A Note, the Paying Agent, with the consent of the Borrower, shall pay the Series A Note without requiring surrender of the Series A Note and make such requirements as the Paying Agent deems fit for its protection, including a lost instrument bond. The Borrower and the Paying Agent may charge the Noteholder their reasonable fees and expenses in this connection. (b) In the event that any Series A Note purchased pursuant to a mandatory purchase is not delivered by the holder thereof on the date such Series A Note is purchased, the Borrower shall execute (if necessary) and the Paying Agent will authenticate and deliver a new Series A Note of like aggregate principal amount as the Series A Note purchased, the Series A Note purchased shall no longer be deemed outstanding and the owner thereof shall be entitled to receive only those funds held on deposit with respect thereto, and the new Series A Note shall, for all purposes of this Agreement, be deemed to evidence the same debt as the Series A Note purchased and shall be remarketed, delivered and registered in accordance with Section 3.08. (c) Every new Series A Note issued pursuant to this Section 2.08 shall (i) constitute an additional contractual obligation of the Borrower regardless of whether, in the case of (a) above, the mutilated, lost, stolen or destroyed Series A Note and, in the case of (b) above, the Series A Note purchased, shall be enforceable at any time by anyone, and (ii) be entitled to all of the benefits of this Agreement equally and proportionately with any and all other Series A Notes issued and outstanding hereunder. (d) All Series A Notes shall be held and owned on the express condition that the foregoing provisions of this Section are exclusive with respect to the replacement or payment of mutilated, lost, stolen or destroyed Series A Notes and the replacement of any Series A Note purchased pursuant to a mandatory purchase and, to the extent permitted by law, shall preclude any and all other rights and remedies with respect to 20 25 the replacement or payment of negotiable instruments or other investment securities without their surrender, notwithstanding any law or statute to the contrary now existing or enacted hereafter. SECTION 2.09. CANCELLATION OF SERIES A NOTES. All Series A Notes paid, redeemed or purchased by the Borrower, either at or before maturity, shall be delivered to the Paying Agent when such payment, redemption or purchase is made, and except as otherwise provided herein shall be cancelled. Whenever a Series A Note is delivered to the Paying Agent for cancellation (upon payment, redemption or purchase), or for transfer, exchange or replacement pursuant to Section 2.05, 2.07 or 2.08, the Paying Agent shall promptly cancel the Series A Note and prepare a certificate of destruction therefor. END OF ARTICLE II 21 26 ARTICLE III REDEMPTION, PURCHASE AND REMARKETING SECTION 3.01. REDEMPTION OF SERIES A NOTES. (a) OPTIONAL REDEMPTION. (i) The Series A Notes are subject to redemption at the option of the Borrower, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date; provided that any such redemption in part shall be in a minimum principal amount of $100,000. (ii) For any optional redemption, the Borrower will provide written notice to the Trustee, the Paying Agent, the Bank and the Remarketing Agent stating the redemption date (consistent with Section 3.02), the principal amount of Series A Notes to be redeemed and other particulars with respect thereto as the Trustee, the Paying Agent or the Remarketing Agent deem necessary. The Borrower will give such notice not more than sixty (60) days and not less than thirty (30) Business Days prior to the redemption date. (b) MANDATORY SINKING FUND REDEMPTION. (i) The Series A Notes are subject to mandatory sinking fund redemption prior to the Maturity Date, in part, with the Series A Notes to be redeemed being selected pursuant to Section 3.03, at a redemption price equal to the principal amount thereof, on October 1, or if any such date is not a Business Day, on the next succeeding Business Day with the same force and effect, in the years and in the principal amounts indicated below:
REDEMPTION DATE PRINCIPAL (OCTOBER 1) AMOUNT ----------- -------- 1996 $500,000 1997 500,000 1998 500,000 1999 500,000 2000 800,000 2001 800,000 2002 800,000 2003 800,000 2004 800,000 2005 800,000 2006 800,000 2007 800,000 2008 800,000 2009 800,000
(ii) Not more than two hundred five (205) days nor less than one hundred ninety-five (195) days prior to any date on 22 27 which the Series A Notes are subject to mandatory sinking fund redemption, the Trustee shall deliver to the Remarketing Agent written notice of such redemption date and the principal amount of Series A Notes subject to redemption on such date, which notice shall also state that (A) pursuant to Section 2.02(a), the Remarketing Agent shall take into account the date and principal amount of any sinking fund redemption in determining the number of days in each Interest Period, and (B) pursuant to Section 3.03, the Remarketing Agent shall select the Series A Notes for redemption on or before the sixtieth (60th) day prior to the sinking fund redemption date and in making such selection shall take into account the Interest Periods with respect to such Series A Notes. Not more than eighty (80) days nor less than sixty-five (65) days prior to any date on which the Series A Notes are subject to mandatory sinking fund redemption, the Trustee shall deliver to the Remarketing Agent another written notice identical to the notice described in the preceding sentence. (iii) At its option, to be exercised on or before the tenth (10th) Business Day next preceding any sinking fund redemption date, the Borrower may: (1) deliver to the Paying Agent for cancellation Series A Notes in any aggregate principal amount desired to be credited against the Borrower's sinking fund redemption obligations; or (2) instruct the Paying Agent to credit against the Borrower's sinking fund redemption obligations any Series A Notes which prior to such date have been redeemed (otherwise than through the operation of the sinking fund) and cancelled by the Paying Agent and not theretofore applied as a credit against any sinking fund redemption obligation. Each Series A Note so delivered or previously redeemed shall be credited by the Paying Agent at 100% of the principal amount thereof against the obligation of the Borrower on such sinking fund redemption dates. Any excess over such obligation shall be credited against future sinking fund redemption obligations in chronological order, and the principal amount of the Series A Notes to be redeemed by operation of the sinking fund shall be accordingly reduced. (c) MANDATORY REDEMPTION ON EXPIRATION OR TERMINATION OF SERIES A LETTER OF CREDIT WITHOUT EXTENSION OR PROVIDING A SUBSTITUTE SERIES A LETTER OF CREDIT. (i) The Series A Notes are subject to mandatory redemption in whole on the fifth (5th) Business Day prior to the stated date of expiration or termination of the Series A Letter of Credit, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date, unless by the twentieth (20th) day prior to such redemption date 23 28 the Borrower provides to the Trustee, and the Trustee has accepted, (1) evidence that such Series A Letter of Credit has been extended or (2) a Substitute Series A Letter of Credit to be effective on or prior to such redemption date. (ii) Not more than two hundred five (205) days nor less than one hundred ninety-five (195) days prior to the stated expiration date of the Series A Letter of Credit then in effect, the Trustee shall deliver to the Remarketing Agent written notice stating (A) the date on which such Series A Letter of Credit is scheduled to expire, (B) that all of the Series A Notes are subject to redemption on the fifth (5th) Business Day prior to such expiration date, and (C) that pursuant to Section 2.02(a)(iii), no Interest Period shall extend beyond the fifth (5th) Business Day prior to such expiration date, unless by the twentieth (20th) day prior to such redemption date the Trustee has received and accepted from the Borrower (1) evidence that such Series A Letter of Credit has been extended or (2) a Substitute Series A Letter of Credit to be effective on or prior to such redemption date. If the Trustee shall not have received either of the items referenced in (1) and (2) of the preceding sentence, then not more than eighty (80) days nor less than sixty-five (65) days prior to the expiration date of the Series A Letter of Credit then in effect, the Trustee shall deliver to the Remarketing Agent another written notice identical to the notice described in the preceding sentence. SECTION 3.02. REDEMPTION DATE. The redemption date for Series A Notes to be redeemed pursuant to Section 3.01(a) must be an Interest Payment Date with respect to the Series A Notes being redeemed. The redemption date for mandatory redemptions will be as specified in Section 3.01(b) or (c), as the case may be, or determined by the Trustee or the Remarketing Agent consistently with the provisions thereof. SECTION 3.03. SELECTION OF SERIES A NOTES TO BE REDEEMED. Except as otherwise provided in this Section 3.03, if fewer than all the Series A Notes are to be redeemed, the Remarketing Agent will select the Series A Notes to be redeemed by lot or such other method as it deems in its sole discretion to be fair and appropriate and shall notify the Paying Agent (which notice may be provided by telephone, immediately confirmed in writing by legible facsimile transmission, registered or certified mail, overnight express delivery, or other secure means) of the holders and denominations of Series A Notes to be redeemed; provided, however, that in selecting Series A Notes to be redeemed the Remarketing Agent shall (i) select only Series A Notes not previously called for redemption, (ii) select Bank Notes prior to any other Series A Notes, and (iii) with respect to any mandatory sinking fund redemption pursuant to Section 3.01(b), select the Series A Notes to be redeemed on or before the sixtieth (60th) day prior to the redemption date, and in making such selection 24 29 take into account the duration of the Interest Periods with respect to such Series A Notes. In the event the Remarketing Agent fails to notify the Paying Agent of the Series A Notes to be redeemed on or before the ninth (9th) Business Day prior to the redemption date, the Paying Agent shall proceed to select Series A Notes for redemption from among the Outstanding Series A Notes in the chronological order in which their Purchase Dates occur, beginning with the earliest Purchase Date; provided, however, that in selecting Series A Notes to be redeemed the Paying Agent shall (i) select only Series A Notes not previously called for redemption and (ii) select Bank Notes prior to any other Series A Notes. If fewer than all Series A Notes having the same Purchase Date (selected for redemption as provided in the immediately preceding sentence) are to be redeemed, the Paying Agent shall treat each owner of Series A Notes as the owner of one Series A Note for purposes of selection for redemption, and shall select Series A Notes for redemption by lot or such other method as it deems fair and appropriate, (1) from among the holders of less than $1,000,000 in aggregate principal amount, provided that if there are no such holders, or if, after selection from among such holders such selection has not resulted in redemption of a sufficient amount of Series A Notes, then (2) from among the holders of $1,000,000 or more in aggregate principal amount of Series A Notes. In the event the Paying Agent selects Series A Notes for redemption, the Paying Agent shall, on or before the day on which notice of redemption is mailed to the holders, give telephonic notice to the Remarketing Agent of the Series A Notes selected for redemption and the name of the holder or holders thereof. No portion of a Series A Note may be redeemed that would result in a Series A Note which is smaller than the then permitted minimum Authorized Denomination. For this purpose, the Remarketing Agent or the Paying Agent will consider each Series A Note in a denomination larger than the minimum denomination permitted by the Series A Notes at the time to be separate Series A Notes each in the minimum denomination. Provisions of this Agreement that apply to Series A Notes called for redemption also apply to portions of Series A Notes called for redemption. Notwithstanding anything to the contrary in this Agreement, there shall be no redemption of less than all of the Series A Notes if there shall have occurred and be continuing an Event of Default. SECTION 3.04. NOTICE OF REDEMPTION. The Trustee will prepare and cause the Paying Agent to send notice of each redemption to each Noteholder whose Series A Notes are being redeemed, the Borrower, the Remarketing Agent and the Bank by first-class mail at least seven (7) Business Days but not more than sixty (60) (or twenty (20), in the case of a mandatory 25 30 redemption pursuant to Section 3.01(c)) days before each redemption. The notice shall identify the Series A Notes or portions thereof to be redeemed and will state (i) the type of redemption and the redemption date, (ii) the redemption price, (iii) that the Series A Notes called for redemption must be surrendered to collect the redemption price, (iv) the address of the Paying Agent at which the Series A Notes must be surrendered, (v) that interest on the Series A Notes called for redemption ceases to accrue on the redemption date, (vi) the CUSIP number of the Series A Notes called for redemption and (vii) any condition to the redemption. With respect to any Series A Notes to be redeemed which have not been presented for redemption within sixty (60) days after the redemption date, the Trustee shall prepare and cause the Paying Agent, at the expense of the Borrower, to give a second notice of redemption to the holder of any such Series A Notes which have not been presented for redemption, by first-class mail, within thirty (30) days of the end of such 60-day period. Failure by the Trustee or the Paying Agent to give any notice of redemption as to any particular Series A Notes will not affect the validity of the call for redemption of any Series A Notes in respect of which no such failure has occurred. Any notice mailed as provided in the Series A Notes will be conclusively presumed to have been given whether or not actually received by any holder or beneficial owner. SECTION 3.05. PAYMENT OF SERIES A NOTES CALLED FOR REDEMPTION; EFFECT OF REDEMPTION. Upon surrender to the Paying Agent, Series A Notes called for redemption shall be paid as provided in this Article at the redemption price provided for in this Article, to the extent that sufficient moneys have been made available therefor to the Paying Agent by 3:45 p.m. on the redemption date pursuant to Section 5.02(a). On the date fixed for redemption, notice having been given in the manner and under the conditions hereinabove provided, the Series A Notes or portions thereof called for redemption shall be due and payable at the redemption price provided therefor, plus accrued interest to such date. On such redemption date, if moneys sufficient to pay the redemption price of the Series A Notes to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Paying Agent, interest on the Series A Notes called for redemption shall cease to accrue; such Series A Notes shall cease to be entitled to any benefits or security under this Agreement or to be deemed Outstanding; and the holders and beneficial owners of such Series A Notes shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to, but excluding, the date of redemption. Any Series A Note so redeemed shall be cancelled by the Paying Agent and shall not be reissued or remarketed. 26 31 SECTION 3.06. SERIES A NOTES REDEEMED IN PART. Upon surrender of a Series A Note redeemed in part, the Paying Agent will authenticate for the holder a new Series A Note or Series A Notes equal in principal amount to the unredeemed portion of the Series A Note surrendered. SECTION 3.07. PURCHASE OF SERIES A NOTES. (a) MANDATORY PURCHASE OF SERIES A NOTES; NOTICE. Except as provided in Section 3.07(c), Series A Notes are subject to mandatory purchase at the Purchase Price: (i) on each Interest Payment Date applicable to such Series A Note; and (ii) on the effective date of any Substitute Series A Letter of Credit delivered pursuant to Section 5.03, if, but only if, such Substitute Series A Letter of Credit will result in a Credit Modification. The Trustee will prepare and cause the Paying Agent to send written notice of each mandatory purchase pursuant to Section 3.07(a)(ii) above (a "Notice of Mandatory Purchase") to each Noteholder whose Series A Notes are being purchased, the Remarketing Agent, the Bank and the Borrower at least 15 days but not more than 60 days before the Purchase Date. No Notice of Mandatory Purchase will be given to holders or beneficial owners of Series A Notes if the mandatory purchase is being made pursuant to Section 3.07(a)(i) above. Any Notice of Mandatory Purchase will be given by first-class mail and will be substantially in the form attached hereto as Exhibit B. With respect to any Series A Notes to be purchased which have not been presented for purchase within 60 days after the Purchase Date, the Paying Agent, at the expense of the Borrower, shall prepare and give a second notice of purchase pursuant to Section 3.07(a)(ii) to the holder of any such Series A Notes which have not been presented for purchase, by first-class mail, within 30 days of the end of such 60-day period. (b) PAYMENT FOR PURCHASED SERIES A NOTES. The Purchase Price of Series A Notes to be purchased on a Purchase Date shall be paid from Remarketing Proceeds available to pay the Purchase Price of such Series A Notes and, to the extent Remarketing Proceeds are not available to pay the Purchase Price of such Series A Notes, from proceeds of a draw on the Series A Letter of Credit pursuant to Section 5.02(a)(iv). To the extent that sufficient moneys have been made available therefor to the Paying Agent or the Remarketing Agent, as applicable, by 3:45 p.m. on the Purchase Date pursuant to Sections 3.08 and 5.02, upon surrender to the Paying Agent of Series A Notes called for mandatory purchase as provided herein, the Purchase Price 27 32 therefor shall be paid in immediately available funds by the Paying Agent's close of business (or, if applicable, the Remarketing Agent's close of business) on the Purchase Date. From and after the Purchase Date or, if later, the date on which such moneys are made available to the Paying Agent or the Remarketing Agent, as applicable, interest accruing on such Series A Notes shall cease to be payable to the prior holder thereof, such Series A Notes shall cease to be entitled to the benefits of this Agreement and to such extent the prior holder shall have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of such Series A Notes as provided in Section 4.03. Notwithstanding any provision to the contrary herein, for so long as the Series A Notes are held pursuant to a book-entry system maintained by DTC, payments of Purchase Price with respect to such Series A Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) LIMITATION ON TENDERS. The holders shall not be required to tender any Series A Note for purchase on a Purchase Date if on such date, following the occurrence of an Event of Default, the Trustee shall have declared the principal of and interest on the Series A Notes immediately due and payable pursuant to Section 7.02. SECTION 3.08. REMARKETING OF PURCHASED SERIES A NOTES. (a) SERIES A NOTES TO BE REMARKETED. Series A Notes purchased as provided herein will be remarketed by the Remarketing Agent as provided in this Section, except that: (i) Series A Notes purchased pursuant to a mandatory purchase and as to which the Remarketing Agent has received a notice of redemption may be remarketed before the date fixed for redemption only if the new purchaser receives, prior to purchasing such Series A Note, a notice that such Series A Note is subject to redemption on the date fixed for redemption, notwithstanding the fact that such notice of redemption may be sent to such purchaser after the time period mentioned in Section 3.04; (ii) the Remarketing Agent shall not be required to remarket Series A Notes under this Section (A) during the continuance of an Event of Default or (B) as otherwise provided in the Remarketing Agreement; (iii) if the Remarketing Agent resigns or is removed pursuant to the terms of this Agreement and the Borrower has failed to appoint a successor in accordance with the terms of this Agreement, on and after the effective date of such resignation or removal (as provided in Section 8.10) and until a successor Remarketing Agent has delivered an acceptance of its 28 33 appointment to the Trustee, the Series A Notes shall not be remarketed; and (iv) The Remarketing Agent shall not at any time remarket the Series A Notes (other than Bank Notes) to the Borrower or any Affiliate. (b) REMARKETING EFFORT. Except as provided in Section 3.08(a) above, the Remarketing Agent will use reasonable best efforts to remarket on the Purchase Date all Series A Notes purchased pursuant to Section 3.07 and, to the extent such purchased Series A Notes are not remarketed on the Purchase Date, thereafter will continue to use reasonable best efforts to remarket such purchased Series A Notes, upon the terms and subject to the conditions of the Remarketing Agreement. As early as practicable but not later than 10:00 a.m. on the Purchase Date and on each Business Day on which the Remarketing Agent is required to remarket Series A Notes pursuant to this Section 3.08, the Remarketing Agent will (i) notify the Trustee and the Paying Agent by telephone (promptly confirmed in writing) of (A) the amount of Remarketing Proceeds which the Remarketing Agent actually has on hand, and (B), if the Series A Notes are not being held pursuant to a book-entry system, the information to enable the Paying Agent to prepare new Series A Note certificates with respect to Series A Notes which were remarketed and (ii) (A) if the Remarketing Agent has received Remarketing Proceeds with respect to all of the Series A Notes to be remarketed on such Purchase Date, transfer such Remarketing Proceeds to the holders tendering such Series A Notes for purchase as provided in (c) below, or (B) if the Remarketing Agent has not received Remarketing Proceeds with respect to all of such Series A Notes, transfer to the Paying Agent the Remarketing Proceeds which the Remarketing Agent has received as provided in (c) below. In the event that any of the Series A Notes tendered for purchase have not been remarketed, the Trustee shall immediately notify the Borrower and the Paying Agent of the amount of such Series A Notes and shall take action as set forth in Section 5.02(a)(iv). If the Trustee shall fail to receive the notice described in the first sentence of this paragraph from the Remarketing Agent by 10:00 a.m., the Trustee shall contact the Remarketing Agent by telephone to confirm the information required in such notice and, if required, the Trustee shall take action as set forth in Section 5.02(a)(iv). (c) REMARKETING PROCEEDS. To the extent the Remarketing Agent has remarketed Series A Notes and has received Remarketing Proceeds from the purchasers thereof, the Remarketing Agent will promptly forward the Remarketing Proceeds by wire transfer (or in such other manner as is acceptable to the Remarketing Agent) to the holders tendering such Series A Notes for purchase (or, if required pursuant to Section 3.08(b), to the Paying Agent). Except as otherwise provided below with respect 29 34 to Bank Notes, until such transfer, all such Remarketing Proceeds shall be deposited in a separate, segregated account of the Remarketing Agent (or, if transferred to the Paying Agent, in a separate, segregated account of the Paying Agent) for application in accordance with the provisions of this Section 3.08, and until so applied shall be held for the benefit of the holders tendering such Series A Notes for purchase. Upon the reasonable written request of the Borrower, the Remarketing Agent (and the Paying Agent, if applicable) shall provide to the Borrower evidence that all Remarketing Proceeds have been maintained in a separate, segregated account. If within ten Business Days of the aforementioned request by Borrower, the Paying Agent cannot provide evidence that Remarketing Proceeds have been segregated, or if the Remarketing Proceeds have been commingled with other moneys, the Borrower shall be entitled, in either case, to remove the Paying Agent without obtaining the consent of the Bank or any other party. Notwithstanding any provision to the contrary herein, for so long as the Series A Notes are held pursuant to a book-entry system maintained by DTC, payments of Remarketing Proceeds with respect to such Series A Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (d) DELIVERY OF PURCHASED SERIES A NOTES. Series A Notes purchased pursuant to Section 3.07 shall be delivered as follows: (i) Series A Notes purchased with Remarketing Proceeds (other than Bank Notes) shall be delivered to the purchasers thereof upon receipt of payment therefor. Prior to such delivery the Paying Agent shall provide for registration of transfer to the Holders, as provided in a written notice from the Remarketing Agent; (ii) All Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series A Letter of Credit) will be registered in the name of the Trustee, as agent and bailee of the Bank, subject to the pledge by the Borrower to the Bank, and shall be held by the Trustee pursuant to the Reimbursement Agreement. Upon receipt of Remarketing Proceeds in respect of Bank Notes, the Remarketing Agent shall notify the Bank, the Trustee and the Borrower of such receipt. Upon its receipt of such notice, the Bank shall, pursuant to the Reimbursement Agreement, notify the Remarketing Agent and the Trustee by telephone, telecopy or telex, promptly confirmed in writing, that the Series A Notes have ceased to be Bank Notes and that the amount of the Letter of Credit has been automatically reinstated as provided therein, whereupon the Remarketing Agent will remit such Remarketing Proceeds as directed by the Bank. The Trustee shall not release the Bank Notes until it receives from the Bank the notice referred to in the preceding sentence. The Remarketing Agent shall hold such Remarketing Proceeds in a segregated account of the Remarketing Agent for the benefit of the Bank, except that if 30 35 the Series A Letter of Credit is not reinstated by an amount equal to the Remarketing Proceeds, then the Remarketing Agent shall hold such funds for the benefit of the purchasers which provided such Remarketing Proceeds. END OF ARTICLE III 31 36 ARTICLE IV PAYMENT OF SERIES A NOTES AND CREATION OF SERIES A LETTER OF CREDIT FUND SECTION 4.01. PAYMENT OF SERIES A NOTES. The Paying Agent shall make payments when due of principal of and interest on Series A Notes, and the Paying Agent or the Remarketing Agent, if applicable, shall make payments when due of the Purchase Price of Series A Notes purchased pursuant to a mandatory purchase: (a) FIRST, (but only with respect to payments of Purchase Price) from Remarketing Proceeds; and (b) SECOND, (but only with respect to payments of interest on the Series A Notes) from moneys (including moneys drawn under the Series A Letter of Credit) on deposit in the Interest Reserve Account of the Series A Letter of Credit Fund; and (c) THIRD, (but only with respect to principal, or the portion of the Purchase Price corresponding to principal, on the Series A Notes) from moneys (including moneys drawn under the Series A Letter of Credit) on deposit in the Principal Account of the Series A Letter of Credit Fund; and (d) LAST, from any other moneys available to the Trustee, including, without limitation, moneys paid by the Borrower pursuant to Section 6.01. The Trustee shall transfer moneys to the Paying Agent at such times and in sufficient amounts so as to permit the Paying Agent to make such payments when due. Notwithstanding the foregoing, however, payments of Purchase Price, principal and interest on Bank Notes will be paid only from the first and last categories of moneys. The proceeds of investments of any moneys in any of these categories may be used to the same extent as the moneys invested could be used. SECTION 4.02. CREATION OF SERIES A LETTER OF CREDIT FUND. There is hereby established the Hanover Direct, Inc. Flexible Term Notes Series A Letter of Credit Fund, in which the Trustee shall establish and maintain a Series A Principal Account and a Series A Interest Reserve Account. Such fund and accounts shall be held and maintained by the Trustee and the moneys and securities therein shall be applied as hereinbefore and hereinafter provided. Except as otherwise provided in Sections 4.03(c) and 7.05, the Borrower shall have no interest whatsoever in the moneys and securities maintained by the Trustee in each said fund and accounts. 32 37 SECTION 4.03. FUNDS RECEIVED; APPLICATION OF MONEY IN SERIES A LETTER OF CREDIT FUND. (a) There shall be deposited in the Series A Letter of Credit Fund all proceeds of drawings under the Series A Letter of Credit received by the Trustee. No other funds (other than investment proceeds from moneys deposited therein) shall be deposited in or commingled with the Series A Letter of Credit Fund. All amounts received by the Trustee as proceeds of draws on the Series A Letter of Credit made pursuant to Section 5.02(a)(i) and (ii) or otherwise with respect to accrued interest on, the Series A Notes shall be deposited in the Interest Reserve Account of the Series A Letter of Credit Fund. All amounts received by the Trustee as proceeds of draws on the Series A Letter of Credit made pursuant to Section 5.02(a)(iii) and (iv) with respect to the principal amount of, or the portion of the Purchase Price representing the principal amount of, the Series A Notes shall be deposited in the Principal Account of the Series A Letter of Credit Fund. (b) To the extent that the remarketing proceeds are insufficient to pay the principal amount of, or the portion of the Purchase Price representing the principal amount of, the Series A Notes, the Borrower hereby authorizes and directs the Trustee, and the Trustee hereby agrees, to withdraw and transfer to the Paying Agent sufficient funds from (i) the Principal Account of the Series A Letter of Credit Fund to pay the principal amount of, and the portion of the Purchase Price representing the principal amount of, the Series A Notes (other than Bank Notes) as the same become due and payable, and (ii) the Interest Reserve Account of the Series A Letter of Credit Fund to pay the accrued interest on the Series A Notes (other than Bank Notes) as the same become due and payable. Except as otherwise provided in Section 4.03(c) and in Section 7.05, amounts on deposit in the Interest Reserve Account shall be used solely by the Trustee and the Paying Agent for the payment of interest on the Series A Notes and the portion of the Purchase Price representing interest on Series A Notes subject to mandatory purchase. (c) Any amounts remaining in the Series A Letter of Credit Fund and all other amounts required to be paid under this Agreement shall be paid to the Bank or, if the Bank shall certify to the Trustee in writing that no obligations remain owing to the Bank under the Reimbursement Agreement at the time of payment of the Series A Notes in full, to the Borrower. Prior to making any payment under this Section 4.03(c), the Trustee shall request, in writing, written certification from the Bank as to amounts owed by the Borrower to the Bank. The Trustee shall be entitled to receive and rely upon such certificate from the Bank as to amounts owed to the Bank and shall be entitled to retain all amounts held hereunder until receipt of such certificate. 33 38 (d) All proceeds of draws on the Series A Letter of Credit received by the Trustee for the payment of principal of or interest accrued on Series A Notes that have been accelerated pursuant to Section 7.02 hereof will be deposited in the appropriate account of the Series A Letter of Credit Fund in accordance with the terms of this Section 4.03 and applied in accordance with the terms of Section 7.03. (e) The proceeds of investments of any moneys in the Series A Letter of Credit Fund may be used to the same extent as the moneys invested could be used. No principal or Purchase Price of or interest on the Series A Notes will be paid from funds provided directly or indirectly by the Borrower or any Affiliate, except in the case of the failure by the Bank to honor a valid draw under the Series A Letter of Credit. (f) (1) Upon the reasonable written request of the Borrower, the Trustee shall provide to the Borrower evidence that all moneys in the Series A Letter of Credit Fund have been maintained in a separate and segregated account. (2) If, within ten Business Days of the request made by Borrower pursuant to Section 4.03 (f)(1) above, the Trustee cannot provide evidence that moneys in the Series A Letter of Credit Fund have been segregated, or if the moneys in the Series A Letter of Credit Fund have been commingled with other moneys, the Borrower shall be entitled, in either case, to remove the Trustee without obtaining the consent of the Bank or any other party. SECTION 4.04. MONEYS TO BE HELD IN TRUST. All proceeds of a draw on the Series A Letter of Credit received by the Trustee and all money that the Trustee or the Paying Agent shall hold in, or shall have withdrawn from, the Series A Letter of Credit Fund or shall have received from any other source and set aside for the purpose of paying any of the Series A Notes, either on the Maturity Date or by purchase (other than as provided in Section 3.08 hereof) or call for redemption or for the purpose of paying any interest on the Series A Notes, shall be held in trust for the respective holders or beneficial owners of the Series A Notes. Moneys received by the Remarketing Agent, the Paying Agent or the Trustee from the sale of a Series A Note under Section 3.08 or from the purchase of any Series A Note will be held segregated from other funds held by the Remarketing Agent, the Paying Agent or the Trustee for the benefit of the Person from whom such Series A Note was purchased and will not be invested while so held. Any money that is so set aside and that remains unclaimed by the holders or beneficial owners for a period of five (5) years after the date on which such Series A Notes have become payable shall be remitted to the Borrower and thereafter the holders and beneficial owners shall look only to the Borrower for payment and then only to the extent of the amounts so received, without any interest thereon, and the 34 39 Trustee, the Placement Agent, the Remarketing Agent, the Paying Agent and the Bank shall have no responsibility with respect to such money. SECTION 4.05. INVESTMENT OF MONEYS. Except as otherwise provided herein, money held for the credit of the Series A Letter of Credit Fund shall be continuously invested and reinvested by the Trustee only in Permitted Investments in accordance with the instructions of the Borrower Representative as provided herein. Any such Permitted Investments shall mature not later than the respective dates when the money held for the credit of such funds or accounts will be required for the purposes intended. Unclaimed moneys held by the Trustee, the Paying Agent or the Remarketing Agent under Section 4.04 shall be held uninvested by the Trustee, the Paying Agent or the Remarketing Agent. The Borrower Representative shall give to the Trustee written directions respecting the investment of any money required to be invested hereunder, subject, however, to the provisions of this Article, and the Trustee shall then invest such money under this Section as so directed by the Borrower Representative. The Trustee shall sell at the best price attainable or reduce to cash a sufficient amount of such Permitted Investments whenever it shall be necessary in order to provide money to make any payment or transfer of money from such fund. The Trustee shall not be liable or responsible for any loss resulting from any such investment. END OF ARTICLE IV 35 40 ARTICLE V SERIES A LETTER OF CREDIT SECTION 5.01. REQUIREMENTS FOR SERIES A LETTER OF CREDIT. In order to support its obligations to make payments pursuant to Section 6.01, the Borrower has agreed, upon the authentication and delivery of the Series A Notes to deliver to the Trustee the Series A Letter of Credit. For so long as any Series A Notes remain Outstanding, a Series A Letter of Credit (i) in an amount not less than the aggregate principal amount of Series A Notes Outstanding plus 35 days' interest on such amount computed at the Maximum Rate on the basis of actual number of days elapsed in a year of 360 days and (ii) otherwise with terms substantially conforming to those of the original Series A Letter of Credit, shall be in effect with respect to such Series A Notes. Any Series A Letter of Credit securing the payment of principal and Purchase Price of and interest on Series A Notes issued hereunder, shall provide for reductions in the principal component and interest component thereof upon any partial redemption of Series A Notes pursuant to this Agreement. SECTION 5.02. DRAWS ON SERIES A LETTER OF CREDIT; EXTENSIONS. (a) The Borrower hereby irrevocably authorizes and directs the Trustee to make timely draws under the Series A Letter of Credit in accordance with the terms thereof in amounts sufficient to make or provide for when due the payments referred to in Section 6.01, except with respect to Bank Notes, which are not entitled to any benefit of the Series A Letter of Credit. All moneys drawn under the Series A Letter of Credit to pay the principal of and interest on, or the Purchase Price of, the Series A Notes shall be credited immediately against the obligation of the Borrower to make payments pursuant to Section 6.01. The authorization and direction for the Trustee to draw under the Series A Letter of Credit is irrevocable prior to payment in full of the Series A Notes. Without intending to limit the foregoing, the Trustee shall: (i) On the Date of Issuance of the Series A Notes, for deposit by the Trustee in the Series A Interest Reserve Account, draw on the Series A Letter of Credit in order to obtain an amount equal to 35 days' interest on the Series A Notes being issued, calculated on the basis of actual number of days elapsed in a year of 360 days at the Maximum Rate; (ii) On the first Business Day immediately preceding the first Business Day of each month while Series A Notes are Outstanding, for deposit by the Trustee in the Series A Interest Reserve Account, draw on the Series A Letter of Credit in order to obtain an amount calculated by the Trustee to be sufficient to make the moneys on deposit in the Series A Interest 36 41 Reserve Account of the Series A Letter of Credit Fund on such day equal the sum of (1) the amount of accrued and unpaid interest on all Outstanding Series A Notes (other than Bank Notes) and (2) 35 days' interest on all Outstanding Series A Notes (including Bank Notes), calculated on the basis of actual number of days elapsed in a year of 360 days at the Maximum Rate; (iii) on each date on which a principal amount of the Series A Notes is due and payable (whether at maturity, by acceleration or call for redemption, but not with respect to the purchase of Series A Notes provided for in (iv) below), for deposit by the Trustee in the Series A Principal Account, draw on the Series A Letter of Credit in order to obtain an amount necessary to make full and timely payment of the principal then due; and (iv) on each Purchase Date, with respect to any Series A Notes to be purchased on such date and as to which the Trustee has received from the Remarketing Agent the notice of remarketing provided for in Section 3.08(b) (or has confirmed the information required in such notice as provided in Section 3.08(b)) and such notice (or confirmation) states that less than the aggregate amount of the Purchase Price of all Series A Notes to be purchased on such date has been received in the form of Remarketing Proceeds, draw on the Series A Letter of Credit in order to obtain an amount equal to the portion of the Purchase Price representing the principal amount of Series A Notes to be purchased on such date less the amount which has been received by the Remarketing Agent in the form of Remarketing Proceeds. The proceeds of a draw on the Series A Letter of Credit made pursuant to this paragraph (iv) shall be transferred by the Trustee to the Paying Agent for payment pursuant to Sections 3.07(b) and 4.01. If any such draws are made on a Purchase Date in connection with the delivery of a Substitute Series A Letter of Credit which results in a Credit Modification, such draws shall be made under the existing Series A Letter of Credit and not under the Substitute Series A Letter of Credit. The Trustee agrees to make all such draws so as to be able to obtain the requested funds by 3:45 p.m. on the payment date or Purchase Date, as the case may be. (b) The Trustee shall advise the Borrower by telecopy or telex on the date of each draw on the Series A Letter of Credit of the amount and date of such draw and of the reason for such draw. (c) The Series A Letter of Credit may be amended or its expiration date extended as provided therein or in this Section 5.02(c). For amendments or for extensions of the term of the Series A Letter of Credit, the Trustee shall, at the direction of the Borrower Representative, but only if required by the Bank to evidence such an amendment or extension, surrender 37 42 the Series A Letter of Credit to the Bank in exchange for a new Series A Letter of Credit of the Bank or the Series A Letter of Credit with notations thereon, as the Bank may so elect, conforming in all material respects to the Series A Letter of Credit except that the expiration date shall be extended. Any such extension shall be for a period of at least one year, or if less, until the fifteenth day following the maturity date of the Series A Notes. Any such amendment or, except as otherwise provided in the Series A Letter of Credit, extension shall be in a form acceptable to the Trustee and the Remarketing Agent, and any of them may require delivery in connection therewith of such other documents, certificates, and assurances as it deems reasonably necessary. SECTION 5.03. SUBSTITUTE SERIES A LETTER OF CREDIT. (a) (i) At any time, upon at least sixty (60) days' prior written notice to the Trustee, the Bank and the Remarketing Agent, the Borrower may, subject to the provisions of Section 5.03(a)(iii), provide for the delivery to the Trustee of a substitute letter of credit complying with the provisions of this Agreement (the "Substitute Series A Letter of Credit"). Any notice delivered pursuant to this Section 5.03(a) shall state (A) the identity of the issuer of the Substitute Series A Letter of Credit, (B) the date the Substitute Series A Letter of Credit will be effective, (C) whether the Substitute Series A Letter of Credit is expected to result in a Credit Modification, and (D) if the Substitute Series A Letter of Credit is expected to result in a Credit Modification and become effective on any day preceding the fifth (5th) Business Day prior to the stated expiration date of the Series A Letter of Credit then in effect, that to the extent provided in Section 2.02(a)(iv) no Interest Period commencing before the effective date of the Substitute Series A Letter of Credit shall extend beyond the effective date of such Substitute Series A Letter of Credit. If a Substitute Series A Letter of Credit is expected to result in a Credit Modification the Trustee shall not accept such Substitute Series A Letter of Credit without the prior written consent of the Bank. If a Series A Letter of Credit is extended or renewed pursuant to the terms thereof, such Series A Letter of Credit as extended or renewed shall not be deemed to be a Substitute Series A Letter of Credit for purposes of this Agreement or the Series A Notes. (ii) Any Substitute Series A Letter of Credit shall have an effective date which is a Business Day occurring at least five (5) Business Days prior to the stated expiration date of the Series A Letter of Credit then in effect, and a stated expiration date which is at least one year following the effective date thereof. (iii) Any Substitute Series A Letter of Credit that would result in a Credit Modification is subject to the approval of the Remarketing Agent. The Remarketing Agent shall not 38 43 approve any Substitute Series A Letter of Credit that will result in a Credit Modification unless, in the sole judgment of the Remarketing Agent, the effective date of such Substitute Series A Letter of Credit will be an Interest Payment Date for all outstanding Series A Notes. (b) At least two Business Days prior to the effective date of any Substitute Series A Letter of Credit (and as a condition to the acceptance by the Trustee of such Substitute Letter of Credit) the Borrower shall deliver to the Trustee the original executed Substitute Series A Letter of Credit, together with: (i) an Opinion of Counsel addressed to the Trustee to the effect that (A) the Substitute Series A Letter of Credit is the valid and binding obligation of the issuer thereof enforceable against such issuer in accordance with its terms except insofar as its enforceability may be limited by any insolvency or similar proceedings applicable to the issuer or by proceedings affecting generally the rights of the issuer's creditors or by general equitable principles; (B) payments of principal or Purchase Price of or interest on the Series A Notes from the proceeds of a draw on the Substitute Series A Letter of Credit will not, in the case of a bankruptcy of the Borrower or any Guarantor (as defined in the Reimbursement Agreement), constitute avoidable preferences under any applicable bankruptcy, reorganization, insolvency or other similar laws; and (C) the Substitute Series A Letter of Credit does not constitute a separate security requiring registration under any applicable federal or state securities laws. In the case of a Substitute Series A Letter of Credit issued by a branch or agency of a foreign commercial bank, there shall also be delivered an Opinion of Counsel from a firm licensed to practice law in the jurisdiction in which the head office of such bank is located, addressed to the Trustee to the effect that the Substitute Series A Letter of Credit is the valid and binding obligation of such bank, enforceable against such bank in accordance with its terms, subject to the limitations referred to in Section 5.03(b)(i)(A) above; (ii) written evidence satisfactory to the Trustee that the issuer of the Substitute Series A Letter of Credit meets the requirements for an issuer of a Series A Letter of Credit as set forth in Article I; (iii) evidence of written approval of the Remarketing Agent; and (iv) a letter from each Rating Agency then rating the Series A Notes or, in the event the Series A Notes are not then rated, other written evidence satisfactory to the Trustee, stating whether the acceptance of the Substitute Series A Letter of Credit will result in a Credit Modification. 39 44 The Trustee shall accept any such Substitute Series A Letter of Credit only in accordance with the terms, and upon satisfaction of the conditions, contained in this Section and any other applicable provisions of this Agreement. In the event that acceptance of the Substitute Series A Letter of Credit results in the occurrence of a mandatory Purchase Date, the Trustee shall not terminate or surrender the Series A Letter of Credit until the Trustee shall have made such drawings thereunder, if any, as shall be required under this Agreement to provide for payment of the Purchase Price of the Series A Notes, and shall have received the proceeds of such drawing from the Bank. (c) Not more than 60 days and not less than 15 days prior to the effective date of the Substitute Series A Letter of Credit, the Trustee shall prepare and cause the Paying Agent to send, in addition to the notice required by Section 3.07(a), by registered or certified mail to each holder (with a copy to the Bank) notice of the issuance of the Substitute Series A Letter of Credit, which notice shall include (i) the identity of the issuer thereof, (ii) the date the Substitute Series A Letter of Credit will be effective, (iii) whether the Substitute Series A Letter of Credit will result in a Credit Modification and (iv) if applicable, notice pursuant to Section 3.07(a) that the Series A Notes are subject to mandatory purchase pursuant to Section 3.07. SECTION 5.04. ENFORCEMENT OF THE SERIES A LETTER OF CREDIT. The Trustee shall have the obligation to hold and maintain the Series A Letter of Credit for the benefit of the Owners of the Series A Notes until the Series A Letter of Credit terminates or expires in accordance with its terms. When the Series A Letter of Credit terminates or expires in accordance with its terms or a Substitute Series A Letter of Credit therefor is accepted hereunder, the Trustee shall immediately surrender the Series A Letter of Credit to the Bank. The Trustee hereby agrees that, except in the case of a redemption in part pursuant to Article III hereof or any other reduction in the principal amount of Series A Notes Outstanding, it will not under any circumstances request that the Bank reduce the amount of the Series A Letter of Credit. If at any time, all Series A Notes shall cease to be Outstanding, the Trustee shall surrender the Series A Letter of Credit to the Bank, in accordance with the terms thereof. If at any time, the Bank shall fail to honor a draft presented under the Series A Letter of Credit, in conformity with the terms thereof, the Trustee shall give immediate telephonic notice thereof to the Remarketing Agent and the Borrower. END OF ARTICLE V 40 45 ARTICLE VI GENERAL COVENANTS AND REPRESENTATIONS SECTION 6.01. PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM. The Borrower shall pay or cause to be paid, when due, the principal of (whether at maturity, by acceleration, by call for redemption or otherwise), the Purchase Price of and interest on the Series A Notes at the places, on the dates and in the manner provided herein and in said Series A Notes according to the true intent and meaning thereof. The obligation of the Borrower to make or cause to be made the payments on the Series A Notes and under this Agreement is absolute and unconditional. SECTION 6.02. COVENANT TO PERFORM AND REPRESENTATIONS AND WARRANTIES OF THE BORROWER AS TO AUTHORITY, ETC. (a) The Borrower shall faithfully perform at all times all of its covenants, undertakings and agreements contained in this Agreement and in any Series A Note executed, authenticated and delivered hereunder. (b) The Borrower represents and warrants that: (i) it has full corporate power and authority to execute and deliver this Agreement and to issue the Series A Notes authorized hereby and to consummate the transactions contemplated hereby and thereby; (ii) the execution and delivery of this Agreement and the issuance of the Series A Notes authorized hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the board of directors or executive committee of the board of directors of the Borrower and no other action or proceeding on the part of the Borrower is necessary to authorize this Agreement, to issue the Series A Notes or to consummate the transactions contemplated hereby or thereby; (iii) the execution, delivery and performance of this Agreement by the Borrower, the issuance of the Series A Notes authorized hereby and the consummation by the Borrower of the transactions contemplated hereby and thereby will not (with or without the giving of notice or the lapse of time or both) (A) violate or result in any default under any provision of the Certificate of Incorporation or bylaws of the Borrower; (B) violate or require any consent or approval under any provision of any law, order, injunction, rule or regulation applicable to the Borrower; (C) require any consent or approval under, result in the breach of any provision of or constitute a default 41 46 under, or otherwise violate the terms of any material agreements, indentures or instruments or obligations to which the Borrower is a party or by which the Borrower may be bound or affected; or (D) require any consent or approval by, notice to or registration with any governmental authority; and (iv) this Agreement and the Series A Notes authorized hereby have been duly and validly executed and delivered by the Borrower and constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. SECTION 6.03. FURTHER INSTRUMENTS AND ACTIONS. At the request of the Trustee, the Borrower shall execute and deliver such further instruments or take such further actions as may be reasonably required to carry out the purposes of this Agreement. SECTION 6.04. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. (a) Each of the Borrower's representations and warranties contained in the Reimbursement Agreement and the Placement Agreement are true and correct in all material respects on and as of the date hereof and are hereby made to the Trustee as if set forth herein. (b) The Borrower shall at all times comply, in all material respects, with the terms, conditions and covenants of the Reimbursement Agreement and the other Series A Note Documents. END OF ARTICLE VI 42 47 ARTICLE VII DEFAULTS AND REMEDIES SECTION 7.01. EVENTS OF DEFAULT. Each of the following events shall be an Event of Default: (a) Default in the due and punctual payment of any interest on any Series A Note; (b) Default in the due and punctual payment of the principal or Purchase Price of any Series A Note (whether at maturity, by acceleration or redemption, upon the Purchase Date or otherwise); (c) Default in the observance or performance of any other of the covenants, conditions or agreements on the part of the Borrower under this Agreement and such default shall continue for thirty (30) days (or such further time as may be granted in writing by the Trustee, with the consent of the Bank) after receipt by the Borrower Representative of a written notice from the Trustee or the Bank specifying such default and requiring the same to be remedied; or (d) Receipt by the Trustee of notice from the Bank that an Event of Default has occurred under the Reimbursement Agreement accompanied by a demand by the Bank that the Trustee declare the Series A Notes to be immediately due and payable. SECTION 7.02. ACCELERATION AND DUTY TO DRAW ON SERIES A LETTER OF CREDIT. (a) Upon the occurrence of an Event of Default under Section 7.01(a), (b) or (d) hereof, the Trustee shall, by notice to the Borrower, the Bank, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent, declare the entire unpaid principal of and interest on the Series A Notes immediately due and payable and, thereupon, the entire unpaid principal of and interest on the Series A Notes shall forthwith become immediately due and payable. (b) Upon the occurrence of any Event of Default specified in Section 7.01(c), the Trustee shall notify the Bank of such Event of Default and shall, by notice to the Borrower, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent declare the entire unpaid principal of and interest on the Series A Notes immediately due and payable, but only if directed to do so by the Bank, unless the Bank has dishonored a valid draw under the Series A Letter of Credit, in which event the Trustee may declare the entire unpaid principal of and interest on the Series A Notes immediately due and payable and, thereupon, in either case, the entire unpaid 43 48 principal of and interest on the Series A Notes shall forthwith become due and payable. (c) In the event the Trustee fails to accelerate as required by this Section 7.02(a), the owners of a majority in aggregate principal amount of Series A Notes Outstanding shall have the right to take such action. (d) Upon the acceleration of the maturity of the Series A Notes, by declaration or otherwise, the Trustee shall immediately draw upon the Series A Letter of Credit for the aggregate unpaid principal amount of the Series A Notes and all interest accrued thereon which shall be applied immediately as set forth in Section 7.03. Upon such acceleration, interest on the Series A Notes shall cease to accrue as of the date of declaration of such acceleration. SECTION 7.03. DISPOSITION OF AMOUNTS DRAWN ON SERIES A LETTER OF CREDIT. All amounts drawn on the Series A Letter of Credit by the Trustee in accordance with Section 7.02(b) shall be held by the Trustee in the Series A Letter of Credit Fund (and invested in accordance with Section 4.05), and, together with moneys on deposit in the Interest Reserve Account of the Series A Letter of Credit Fund which have been previously drawn on the Series A Letter of Credit pursuant to Section 5.02(a)(i) and (ii), shall be applied immediately to the payment of principal of and interest accrued on the Series A Notes unless, prior to or with the proceeds of the draw on the Series A Letter of Credit, the Trustee receives written instructions from the Bank to use such proceeds, together with the moneys on deposit in the Interest Reserve Account of the Series A Letter of Credit Fund, to purchase all Series A Notes. If such instructions are received by the Trustee, such draw proceeds and, if necessary, the moneys on deposit in the Interest Reserve Account, shall be immediately applied to the purchase of the Series A Notes, the acceleration of the Series A Notes shall be cancelled, the Series A Notes shall become Bank Notes and the Series A Notes shall be registered in the name of the Trustee, as agent and bailee of the Bank, and pledged under the Reimbursement Agreement as additional security for repayment of the Borrower's reimbursement obligations under the Reimbursement Agreement. Thereafter, such Series A Notes shall not be remarketed by the Remarketing Agent unless the Series A Letter of Credit is reinstated or a Substitute Series A Letter of Credit is delivered to the Trustee pursuant to Section 5.03. SECTION 7.04. NO REMEDY EXCLUSIVE. Subject to the limitations imposed on the Trustee's ability to act without the consent of the Bank, no remedy conferred by this Agreement upon or reserved to the Trustee or to the Bank is intended to be exclusive of any other remedy, but each such remedy shall be cumulative and shall be in addition to any other remedy given to 44 49 the Trustee or to the Bank hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any default or Event of Default hereunder, whether by the Trustee pursuant to Section 7.06 or by the Noteholders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. SECTION 7.05. APPLICATION OF MONEYS. All amounts received by the Trustee from a draw upon the Series A Letter of Credit shall be applied exclusively to the payment of principal of and interest on the Series A Notes or the Purchase Price thereof as herein provided; provided, however, that whenever all principal and Purchase Price of and interest on all Series A Notes have been paid under the provisions of this Section and the Series A Note Facility has been terminated and all expenses and charges of the Trustee have been paid, and all obligations of the Borrower to the Bank pursuant to the Reimbursement Agreement shall have been paid in full, the balance remaining in the Series A Letter of Credit Fund shall be paid to the Borrower as provided in Section 4.03. SECTION 7.06. WAIVERS OF EVENTS OF DEFAULT. The Trustee, with the written consent of the Bank, may waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of and interest on the Series A Notes, and shall do so, with the consent of the Bank, upon the written request of the holders of a majority in aggregate principal amount of Series A Notes then Outstanding; provided, however, that: (a) there shall not be waived without the consent of the holders of all Series A Notes then outstanding: (i) any default in the payment when due of the principal or Purchase Price of any Outstanding Series A Notes (whether at maturity or by mandatory or optional redemption), or (ii) any default in the payment when due of the interest on any such Series A Notes unless, prior to such waiver or rescission: (1) there shall have been paid or provided for all arrears of interest at the rate borne by the Series A Notes on overdue installments of principal, all arrears of 45 50 payments of principal and Purchase Price when due and all expenses of the Trustee in connection with such default, and (2) in case of any such waiver or rescission, or in case of the discontinuance, abandonment or adverse determination of any proceeding taken by the Trustee on account of any such default, the Trustee and the Noteholders shall be restored to their respective former positions and rights hereunder; and (b) unless the Series A Letter of Credit is reinstated in full as evidenced in writing by the Bank as to principal and interest, there shall be no waiver or rescission if the Series A Letter of Credit shall have been drawn upon due to the occurrence of an Event of Default. No such waiver or rescission shall extend to any subsequent or other default or Event of Default, or impair any right consequent thereon. SECTION 7.07. UNCONDITIONAL RIGHT TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Except as otherwise provided in Section 7.09 nothing in this Agreement shall, however, affect or impair the right of any Noteholder to enforce, by action at law, payment of the principal or Purchase Price of or interest on any Series A Note at and after the maturity thereof, or on the date fixed for redemption or purchase or (subject to the provisions of Section 7.02) on the same being declared due prior to maturity as herein provided, or the obligation of the Borrower to pay the principal or Purchase Price of and interest on each of the Series A Notes issued hereunder to the respective holders thereof at the time, place and in the manner herein and in the Series A Notes expressed. SECTION 7.08. [RESERVED.] SECTION 7.09. BANK DEEMED HOLDER. For all purposes of this Article VII (other than receipt of payments), the Bank shall, so long as the Series A Letter of Credit shall not have been dishonored (other than for failure to receive a drawing in strict compliance with the terms thereof or other reason permitted by the Series A Letter of Credit), be deemed the holder and registered owner of all Series A Notes. As such, the Bank may take all actions permitted by this Article VII to be taken by the holders or registered owners of the Series A Notes, to the exclusion of the actual beneficial owners and registered owners of the Series A Notes. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY HEREIN, ON OR AFTER THE EFFECTIVE DATE OF A SUBSTITUTE SERIES A LETTER OF CREDIT WHICH RESULTS IN A CREDIT MODIFICATION, THE BANK, AS ISSUER OF THE SERIES A LETTER OF CREDIT REPLACED BY SUCH SUBSTITUTE SERIES A LETTER OF CREDIT, SHALL BE DEEMED TO BE THE "BANK" HEREUNDER FOR PURPOSES OF GIVING NOTICE OF DEFAULT UNDER SECTION 7.01(D) AND FOR PURPOSES OF EXERCISING REMEDIES 46 51 HEREUNDER, BUT ONLY SO LONG AS (I) OBLIGATIONS REMAIN OWING TO THE BANK UNDER THE REIMBURSEMENT AGREEMENT OR THE LOAN DOCUMENTS (AS DEFINED IN THE REIMBURSEMENT AGREEMENT) OR (II) THERE REMAIN OUTSTANDING HEREUNDER ANY BANK NOTES PLEDGED TO THE BANK UNDER THE REIMBURSEMENT AGREEMENT. END OF ARTICLE VII 47 52 ARTICLE VIII TRUSTEE, REMARKETING AGENT, PLACEMENT AGENT AND PAYING AGENT SECTION 8.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise its rights and powers and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in this Agreement and no others and no implied covenants or obligations shall be read into this Agreement against the Trustee, and (ii) in the absence of bad faith, gross negligence or willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement. However, the Trustee shall examine the certificates and opinions to determine whether they conform to the requirements of this Agreement. (c) The Trustee may not be relieved from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of (b) above; and (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was grossly negligent in ascertaining the pertinent facts. (d) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense, but the Trustee may not require indemnity as a condition to declaring the principal of and interest on the Series A Notes to be due immediately under Section 7.02 or to drawing on the Series A Letter of Credit or to taking action under the Series A Letter of Credit or in making payment of the principal of, interest on and Purchase Price of Series A Notes when due. 48 53 (e) The Trustee shall not be liable for interest on any cash held by it except as the Trustee may agree with the Borrower. (f) The Trustee shall strictly comply with the terms of the Series A Letter of Credit. (g) The Trustee shall maintain adequate records pertaining to the funds in the Series A Letter of Credit Fund, the investment thereof and the disbursement therefrom; notwithstanding anything to the contrary in this Agreement, the Trustee shall not be required to advance its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. (h) Every provision of this Agreement that in any way relates to the Trustee is subject to all the foregoing paragraphs of this Section. (i) The Trustee shall in no event be responsible for ensuring that the rate of interest due and payable on the Series A Notes under this Agreement does not exceed the highest legal rate of interest permissible under federal or state law applicable thereto. SECTION 8.02. RIGHTS OF TRUSTEE. (a) Subject to the foregoing Section, including, but not limited to, Section 8.01(b)(ii) and 8.01(c), the Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. Any action taken by the Trustee pursuant to this Agreement upon the request or authority or consent of any person, who at the time of making such request or authority or consent is the owner of any Series A Note, shall be conclusive and binding upon all future owners of any Series A Note issued in replacement thereof. (b) Before the Trustee acts or refrains from acting, it may require a certificate of an appropriate officer or officers of the Borrower or an Opinion of Counsel stating that (i) the person making such certificate or opinion has read such covenant or condition; (ii) the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. The Trustee shall not be liable 49 54 for any loss or damage or action it takes or omits to take in good faith in reliance on the certificate or Opinion of Counsel. (c) Subject to the consent of the Borrower, the Trustee may execute any of its powers hereunder and perform any of its duties through agents, attorneys or employees or co-Trustees and shall not be responsible for the misconduct or negligence of any agent, attorney, employee or co-Trustee appointed with due care. SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE, ETC. The Trustee in its individual or any other capacity may become the owner, Trustee or pledgee of Series A Notes and may otherwise deal with the Bank or with the Borrower or its affiliates with the same rights it would have if it were not Trustee. SECTION 8.04. TRUSTEE'S DISCLAIMER. Subject to Sections 8.01(b) and 8.01(c): (a) the Trustee makes no representation as to the validity or adequacy of this Agreement or the Series A Notes and it shall not be accountable for the Borrower's use of the proceeds from the Series A Notes paid to the Borrower; (b) the Trustee shall not be responsible for the application of any of the proceeds of the Series A Notes or any other moneys deposited with it and paid out, withdrawn or transferred hereunder if such application, payment, withdrawal or transfer shall be made in accordance with the provisions of this Agreement. SECTION 8.05. NOTICE OF DEFAULTS. The Trustee shall not be required to take notice, or be deemed to have notice, of any default or Event of Default under this Agreement, other than an Event of Default under Section 7.01(a), (b) or (d), unless specifically notified in writing at such address as set forth in Section 10.01 hereof of such default or Event of Default by Noteholders of at least 25% in principal amount of the Series A Notes then Outstanding, by the Bank, by the Remarketing Agent or by the Borrower. If an event occurs which with the giving of notice or lapse of time or both would be an Event of Default, and if the event is continuing and if the Trustee has actual notice or is deemed to have notice thereof as herein provided, the Trustee shall cause the Paying Agent to mail to each Noteholder, the Remarketing Agent and the Bank notice of the event upon such occurrence. SECTION 8.06. COMPENSATION AND INDEMNIFICATION OF TRUSTEE. For acting under this Agreement, the Trustee shall be entitled to compensation by the Borrower of reasonable fees for the Trustee's services and reimbursement of advances, counsel fees and other 50 55 expenses reasonably and necessarily made or incurred by the Trustee in connection with its services under this Agreement. The Trustee shall be indemnified by the Borrower for, and shall be held harmless against, any loss, liability or expense incurred without negligence, willful misconduct or bad faith on the Trustee's part, arising out of or in connection with the acceptance or administration of the exercise or performance of any of its powers or duties hereunder. SECTION 8.07. ELIGIBILITY OF TRUSTEE. This Agreement shall always have a Trustee that meets the qualifications set forth in this Section 8.07. The Trustee shall: (i) be a corporation or national banking association duly organized under the laws of the United States of America or any state or territory thereof, doing business and having an office in such location as shall be approved by the Remarketing Agent, (ii) have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition, (iii) either have senior long-term debt securities rated "Baa3/P-3" or better by Moody's Investors Service, Inc. or "BBB-/A3" by Standard & Poor's Ratings Group or be a direct or indirect subsidiary of a bank or bank holding company which has senior long-term debt securities rated Baa3/P-3 or better by Moody's Investors Service, Inc. or BBB-/A3 by Standard & Poor's Ratings Group and (iv) be authorized by law to perform all the duties imposed upon it by this Agreement. SECTION 8.08. REPLACEMENT OF TRUSTEE. The Trustee may resign and be discharged of the duties and obligations created by this Agreement by notifying the Borrower, the Paying Agent, the Bank and the Remarketing Agent; provided, however, that no such resignation shall become effective until the appointment of a successor Trustee, as hereinafter provided. The holders of not less than a majority in principal amount of the Series A Notes may remove the Trustee by notifying the removed Trustee and may appoint a successor Trustee with the Borrower's, the Bank's, the Paying Agent's and the Remarketing Agent's prior written consent; provided, however, that no such removal shall become effective until the appointment of a successor Trustee, as hereinafter provided. Except upon the occurrence and during the continuance of an Event of Default hereunder, the Borrower may remove the Trustee, but (except to the extent otherwise provided herein) only after obtaining the prior written consent of the Bank and giving written notice thereof to the Paying Agent, the Remarketing Agent and the Bank by first-class mail, postage prepaid; provided, however, that no such removal shall become effective until the appointment of a successor Trustee, as hereinafter provided. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Borrower, with the 51 56 prior written consent of the Paying Agent, the Bank and the Remarketing Agent shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Borrower, the Paying Agent, the Bank and the Remarketing Agent. Immediately thereafter, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall then (but only then) become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Agreement. The successor Trustee shall notify the holders of the Series A Notes of its acceptance of the duties and obligations hereunder in writing by first-class mail promptly following such acceptance. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Borrower, the Paying Agent, the Bank or the holders of a majority in principal amount of the Series A Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.07, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. SECTION 8.09. DUTIES OF REMARKETING AGENT. (a) The Remarketing Agent will, in accordance with the Remarketing Agreement, establish the Interest Periods and corresponding Interest Rates for the Series A Notes and perform the other duties provided for to be done by it in this Agreement and the Remarketing Agreement. (b) Subject to the consent of the Borrower, the Remarketing Agent may execute and perform any of its duties hereunder through agents, attorneys, employees or co-remarketing agents and shall not be responsible for the misconduct or negligence of any agent, attorney, employee or co-remarketing agent appointed with due care. SECTION 8.10. ELIGIBILITY OF REMARKETING AGENT; REPLACEMENT. The Remarketing Agent will be (i) a member of the National Association of Securities Dealers, Inc. having excess net capital (as defined in Rule 15c3-1 of the Securities Exchange Act of 1934, as amended) of at least $25,000,000 or, in the alternative, a national banking association having a combined capital stock, surplus and undivided profits of at least $100,000,000, (ii) a participant of the Securities Depository (but only if DTC is Securities Depository hereunder), and (iii) 52 57 if the Series A Notes are rated by a Rating Agency, rated at least Baa3/P-3 or otherwise be acceptable to the Rating Agency. NationsBank of North Carolina, N.A. is hereby appointed as the initial Remarketing Agent and is herein referred to as the "Remarketing Agent." Any Remarketing Agent shall accept its appointment hereunder in writing. The Remarketing Agent may resign by notifying the Borrower, the Trustee, the Paying Agent and the Bank at least 45 days before the effective date of the resignation. The Borrower may at any time remove the Remarketing Agent and appoint a successor by notifying the Remarketing Agent, the Bank, the Paying Agent and the Trustee at least 60 days prior to the effective date of such removal. Upon the resignation or removal of the Remarketing Agent, the Borrower shall appoint a successor by notifying the Remarketing Agent, the Bank, the Paying Agent and the Trustee. If the Remarketing Agent resigns or is removed pursuant to the terms of this Agreement and, after 45 days in the case of notice of resignation or 60 days in the case of notice of removal, the Borrower has failed to appoint a successor in accordance with the terms of this Agreement, such resignation or removal shall take effect immediately and, as provided in Section 3.08(a)(iii), the Series A Notes shall not be remarketed until a successor Remarketing Agent has delivered an acceptance of its appointment to the Trustee. Notwithstanding the foregoing, with the consent of the Borrower and with prior written notice to (but without the consent of), the Trustee, the Bank, the Paying Agent and the Noteholders, NationsBank of North Carolina, N.A. may assign or transfer any or all of its rights and obligations hereunder and under the Remarketing Agreement to any other direct or indirect, wholly-owned subsidiary of NationsBank Corporation so long as such subsidiary meets the qualifications for a Remarketing Agent set forth herein and is otherwise permitted to perform such obligations under all applicable federal and state banking and securities laws, rules and regulations. SECTION 8.11. DUTIES OF PLACEMENT AGENT. (a) The Placement Agent will, in accordance with the Placement Agreement, arrange to place the Series A Notes with qualified investors and perform the other duties provided for to be done by it in this Agreement and the Placement Agreement. (b) Subject to the consent of the Borrower, the Placement Agent may execute and perform any of its duties hereunder through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (c) Upon the issuance of the Series A Notes hereunder, the Placement Agent shall assist the Borrower in obtaining from 53 58 Standard & Poor's Ratings Group a long-term and a short-term rating on the Series A Notes, which ratings shall be equivalent to the long-term and short-term ratings of the Bank. The Borrower hereby agrees to pay (or, to the extent incurred directly by the Placement Agent, reimburse the Placement Agent for) all fees, costs and expenses incurred in connection with obtaining and maintaining such ratings. SECTION 8.12. ELIGIBILITY OF PLACEMENT AGENT; REPLACEMENT. The Placement Agent will be (i) a member of the National Association of Securities Dealers, Inc. having a capitalization of at least $25,000,000 or, in the alternative, a national banking association having a combined capital stock, surplus and undivided profits of at least $100,000,000, (ii) if the Series A Notes are rated by a Rating Agency, rated at least Baa3/P-3 or otherwise be acceptable to the Rating Agency and (iii) otherwise satisfactory to the Bank, the Remarketing Agent and the Trustee. NationsBank of North Carolina, N.A. is hereby appointed as the initial Placement Agent. Any Placement Agent shall accept its appointment hereunder in writing. The Placement Agent may resign by notifying the Borrower, the Remarketing Agent, the Trustee, the Paying Agent and the Bank at least 45 days before the effective date of the resignation. The Borrower may at any time remove the Placement Agent and appoint a successor by notifying the Placement Agent, the Remarketing Agent, the Bank, the Paying Agent and the Trustee at least 60 days prior to the effective date of such removal. Upon the resignation or removal of the Placement Agent, the Borrower shall appoint a successor by notifying the Placement Agent, the Bank, the Remarketing Agent, the Paying Agent and the Trustee. If the Placement agent resigns or is removed pursuant to the terms of this Agreement and, after 45 days in the case of resignation or 60 days in the case of removal, the Borrower has failed to appoint a successor in accordance with the terms of this Agreement, such resignation or removal shall take effect immediately. Notwithstanding the foregoing, with the consent of the Borrower and with prior written notice to (but without the consent of), the Trustee, the Bank, the Remarketing Agent, the Paying Agent and the Noteholders, NationsBank of North Carolina, N.A. may assign or transfer any or all of its rights and obligations hereunder and under the Placement Agreement to any other direct or indirect, wholly-owned subsidiary of NationsBank Corporation so long as such subsidiary meets the qualifications for a Placement Agent set forth herein and is otherwise permitted to perform such obligations under all applicable federal and state banking and securities laws, rules and regulations. SECTION 8.13. APPOINTMENT OF AND DUTIES OF PAYING AGENT. Norwest Bank Minnesota, N.A. is hereby appointed the Paying Agent under this Agreement. The Paying Agent, by its execution hereof, 54 59 hereby accepts all duties and obligations imposed upon it under this Agreement. The Paying Agent shall designate to the Trustee its principal office for purposes hereof, which shall be the office of the Paying Agent at which all notices and other communications in connection herewith may be delivered to it. Any successor Paying Agent, by written instrument delivered to the Trustee, the Borrower, the Bank and the Remarketing Agent, shall accept the duties and obligations imposed upon it under this Agreement. The Paying Agent shall not be liable in connection with its duties hereunder except for its own willful misconduct, negligence or bad faith. The Paying Agent hereby agrees to make payments of principal and Purchase Price of and interest on the Series A Notes and perform its other duties and obligations all as more fully set forth herein and to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Borrower, the Bank, the Remarketing Agent and the Trustee at all reasonable times. SECTION 8.14. QUALIFICATIONS OF PAYING AGENT; REPLACEMENT OF PAYING AGENT . Any successor Paying Agent shall be a banking association or corporation duly organized under the laws of the United States of America or any state or territory thereof and authorized by law to perform all the duties imposed upon it by this Agreement. The Paying Agent may resign and be discharged of the duties and obligations created by this Agreement by notifying the Borrower, the Trustee, the Bank and the Remarketing Agent; provided, however, that no such resignation shall become effective until the appointment of a successor Paying Agent, as hereinafter provided. The holders of not less than a majority in principal amount of the Series A Notes may remove the Paying Agent by notifying the removed Paying Agent and may appoint a successor Paying Agent with the Borrower's, the Bank's, the Trustee's and the Remarketing Agent's prior written consent; provided, however, that no such removal shall become effective until the appointment of a successor Paying Agent, as hereinafter provided. Except upon the occurrence and during the continuance of an Event of Default hereunder, the Borrower may remove the Paying Agent, but (except to the extent otherwise provided herein) only after obtaining the prior written consent of the Bank and giving written notice thereof to the Trustee, the Remarketing Agent and the Bank by first-class mail, postage prepaid; provided, however, that no such removal shall become effective until the appointment of a successor Paying Agent, as hereinafter provided. If the Paying Agent resigns or is removed or if a vacancy exists in the office of Paying Agent for any reason, the Borrower, with the prior written consent of the Trustee, the Bank and the Remarketing Agent shall promptly appoint a successor Paying Agent. A successor Paying Agent shall deliver a written acceptance of its appointment to the retiring Paying Agent and to the 55 60 Borrower, the Trustee, the Bank and the Remarketing Agent. Immediately thereafter, the retiring Paying Agent shall transfer all property held by it as Paying Agent to the successor Paying Agent, the resignation or removal of the retiring Paying Agent shall then (but only then) become effective, and the successor Paying Agent shall have all the rights, powers and duties of the Paying Agent under this Agreement. The successor Paying Agent shall notify the holders of the Series A Notes of its acceptance of the duties and obligations hereunder in writing by first-class mail promptly following such acceptance. If a successor Paying Agent does not take office within 60 days after the retiring Paying Agent resigns or is removed, the retiring Paying Agent, the Borrower, the Trustee, the Bank or the holders of a majority in principal amount of the Series A Notes may petition any court of competent jurisdiction for the appointment of a successor Paying Agent. If the Paying Agent fails to comply with this Section 8.14, any Noteholder may petition any court of competent jurisdiction for the removal of the Paying Agent and the appointment of a successor Paying Agent. SECTION 8.15. SUCCESSOR TRUSTEE, PAYING AGENT OR REMARKETING AGENT BY MERGER. If the Trustee, Paying Agent or Remarketing Agent consolidates with, merges or converts into, or transfers all or substantially all its assets (or, in the case of a bank or trust company, its corporate trust assets) to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee, Paying Agent or Remarketing Agent, provided that such corporation or national banking association shall otherwise be eligible to serve in such capacity under this Agreement. SECTION 8.16. TRUSTEE'S COVENANT AS TO BANK NOTES. The Trustee shall register all Series A Notes (or beneficial interests in Series A Notes) which constitute Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series A Letter of Credit) in its name as provided in Section 3.08(d)(ii) and shall hold such Bank Notes as agent and bailee of the Bank subject to and in accordance with the terms of this Agreement and the Reimbursement Agreement. SECTION 8.17. TRUSTEE AND PAYING AGENT AS ONE ENTITY. Notwithstanding any provision to the contrary in this Agreement, including, without limitation, Sections 8.08 and 8.14, except as otherwise provided in this Section 8.17, the Trustee and the Paying Agent shall be and shall remain, at all times and for all purposes hereunder, one and the same entity, and (a) in the event that the Trustee shall resign or be removed pursuant to the terms 56 61 of Section 8.08, the Paying Agent shall be deemed simultaneously to have resigned or to have been removed, as applicable, pursuant to Section 8.14, and (b) in the event that the Paying Agent shall resign or be removed pursuant to the terms of Section 8.14, the Trustee shall be deemed simultaneously to have resigned or to have been removed, as applicable, pursuant to Section 8.08; provided, however, that more than one entity may serve as Trustee and Paying Agent hereunder if the Borrower, the Remarketing Agent and each such entity shall expressly consent in writing to such arrangement. END OF ARTICLE VIII 57 62 ARTICLE IX AMENDMENTS OF AGREEMENT SECTION 9.01. WITHOUT CONSENT OF NOTEHOLDERS. The Borrower ,the Trustee and the Paying Agent may amend or supplement this Agreement or the Series A Notes without prior notice to or consent of any Noteholder: (a) to cure any ambiguity, inconsistency or formal defect or omission; (b) to grant to the Trustee for the benefit of the Noteholders additional rights, remedies, powers or authority; (c) to modify this Agreement or the Series A Notes to permit qualification under the Trust Indenture Act of 1939, as amended, or any similar federal statute at the time in effect; to permit the qualification of the Series A Notes for sale under the securities laws of any state of the United States; or to prevent the application of the Investment Company Act of 1940, as amended, to any of the transactions contemplated by, or any of the parties to this Agreement or the Series A Notes; (d) to provide for uncertificated Series A Notes or to make any change necessary to give effect to a book-entry system pursuant to Section 2.07; (e) to evidence the succession of a new Trustee or the appointment by the Trustee of a co-Trustee; (f) to make any change not materially adversely affecting any Noteholder's rights requested by each Rating Agency then rating the Series A Notes in order (i) to obtain a rating from each such Rating Agency after the initial issuance of the Series A Notes if the Series A Notes are initially issued without a rating equivalent to the rating assigned to other securities supported by a Series A Letter of Credit of the Bank or (ii) to maintain any rating on the Series A Notes; (g) to make any change not materially adversely affecting any Noteholder's rights to provide for or to implement the provisions of a Series A Letter of Credit or a Substitute Series A Letter of Credit; (h) to make any change to provide for or to implement the provisions of a Series A Letter of Credit or a Substitute Series A Letter of Credit only if such Series A Letter of Credit or Substitute Series A Letter of Credit and the changes to this Agreement become effective on a Purchase Date applicable to all of the Series A Notes; 58 63 (i) to make any change that does not materially adversely affect the rights of any Noteholder; or (j) to add to this Agreement the obligation of the Trustee or the Borrower to disclose such information regarding the Series A Notes, the Project, the Borrower or the Bank as shall be required or recommended to be disclosed in accordance with applicable regulations or guidelines established by, among others, the American Bankers Association Corporate Trust Committee. SECTION 9.02. WITH CONSENT OF NOTEHOLDERS. If an amendment of either this Agreement or the Series A Notes is permitted by the preceding Section, the Borrower, the Trustee and the Paying Agent may enter into such amendment, without prior notice to any Noteholders; provided, however, that if the Trustee determines in its sole discretion that such amendment materially adversely affects the Owners, then prior to entering into such an amendment, the Borrower and the Trustee shall obtain the consent of the holders of at least a majority in principal amount of the Series A Notes then Outstanding. Without the consent of all Noteholders affected, however, no amendment or supplement may (a) extend the final stated maturity of any Series A Note, (b) reduce the principal amount of, or Interest Rate on (prior to its Purchase Date), any Series A Note or change the terms of any redemption or mandatory purchase thereof, (c) effect a privilege or priority of any Series A Note or Series A Notes over any other Series A Note or Series A Notes (except as provided herein), (d) reduce the percentage of the principal amount of the Series A Notes required for consent to such amendment or (f) alter the obligation of the Bank under the Series A Letter of Credit or of the Borrower under the Series A Note Documents such that the Owners are materially adversely affected. SECTION 9.03. EFFECT OF CONSENTS. After an amendment becomes effective, it will bind every Noteholder unless it makes a change described in any of the lettered clauses of the preceding Section. In such case, the amendment will bind each Noteholder who consented to it and each subsequent holder of a Series A Note or portion of a Series A Note evidencing the same debt as the consenting holder's Series A Note. SECTION 9.04. NOTATION ON OR EXCHANGE OF SERIES A NOTES. If an amendment or supplement changes the terms of a Series A Note, the Trustee may require the holder to deliver such Series A Note to the Paying Agent. The Paying Agent may place an appropriate notation on the Series A Note regarding the changed terms and return it to the holder. Alternatively, if the Trustee and the Borrower determine, the Borrower in exchange for the Series A Note will issue and the Paying Agent will authenticate a new Series A Note that reflects the changed terms. In either 59 64 event, the cost of placing such notation on the Series A Note(s) shall be borne by the Borrower. SECTION 9.05. SIGNING BY TRUSTEE OF AMENDMENTS. The Trustee and the Paying Agent will sign any amendment to this Agreement or the Series A Notes authorized by this Article if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee or the Paying Agent. If it does, the Trustee or the Paying Agent may, but need not, sign it. In signing an amendment, the Trustee will be entitled to receive and (subject to Section 8.01) will be fully protected in relying on an Opinion of Counsel stating that such amendment or supplement is authorized by this Agreement and is duly authorized, executed and delivered and enforceable in accordance with its terms. SECTION 9.06. BANK AND REMARKETING AGENT CONSENT REQUIRED. Except to the extent that the consent of the Remarketing Agent or the Bank is not required for the action that is the subject of the amendment (e.g., removal of the Remarketing Agent , the Trustee or the Paying Agent by the Borrower upon the terms specified herein), an amendment to this Agreement or the Series A Notes shall not become effective unless the Remarketing Agent (but only to the extent that such amendment affects the rights, duties or obligations of the Remarketing Agent hereunder) and the Bank deliver to the Trustee their written consents to the amendment. In any event, no amendment hereto shall become effective until the Remarketing Agent receives a copy of the amendment and acknowledges such receipt; provided, however, that receipt and acknowledgement of a copy of any such amendment by the Remarketing Agent shall be deemed to have occurred if the copy of the amendment is accompanied by notice requesting acknowledgement within three (3) Business Days, and the copy of the amendment is sent by facsimile to the Remarketing Agent (confirmed immediately by a telephone conversation between the sender of the facsimile and an authorized representative of the Remarketing Agent) and the Remarketing Agent fails to acknowledge receipt within three (3) Business Days. For purposes of this section, for so long as NationsBank of North Carolina, N.A. serves as Remarketing Agent hereunder, an "authorized representative" of the Remarketing Agent shall mean a VRDN Product Manager. On the Date of Issuance, the Remarketing Agent shall deliver to the Borrower a certificate identifying each officer of the Remarketing Agent qualifying as a VRDN Product Manager on such date, and each such officer's title, address and telephone number. SECTION 9.07. NOTICE TO NOTEHOLDERS. The Trustee shall cause the Paying Agent to promptly mail notice of the execution of an amendment hereto to be mailed promptly by first-class mail to each Noteholder at the holder's registered address. The notice shall state briefly the nature of the amendment and that 60 65 copies thereof are on file with the Trustee for inspection by all Noteholders. END OF ARTICLE IX 61 66 ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES. (a) Any notice, request, direction, designation, consent, acknowledgment, certification, appointment, waiver or other communication required or permitted by this Agreement or the Series A Notes must be in writing except as expressly provided otherwise in this Agreement or the Series A Notes. (b) Except as otherwise provided herein, any notice or other communication shall be sufficiently given and deemed given when delivered by hand or overnight express delivery or mailed by first-class mail, postage prepaid, addressed as follows or, if the communication may be given by telex or telecopy under the provisions of this Agreement, when telexed or telecopied to the following numbers (and, in the case of any telex or telecopy to the Borrower, confirmed in writing within 24 hours by receipted hand delivery): If to the Borrower: Hanover Direct, Inc. 1500 Harbor Boulevard, 1st Floor Weehawken, New Jersey 07087 Attention: General Counsel Telephone No.: (201) 319-3403 Fax No.: (201) 392-5005 If to the Trustee or the Paying Agent: Norwest Bank Minnesota, N.A. Norwest Center Sixth & Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Department Telephone No.: (612) 667-8058 Fax No.: (612) 667-9825 If to the Remarketing NationsBank of North Carolina, N.A. Agent or Placement Agent: NationsBank Corporate Center 100 North Tryon Street NC1-007-06-07 Charlotte, North Carolina 28255 Attention: Money Market Sales Department Telephone No.: (704) 386-1752 Fax No.: (704) 386-6490 62 67 with a copy to: NationsBank of North Carolina, N.A. NationsBank Corporate Center, 6th Floor 100 North Tryon Street NC1-007-06-01 Charlotte, North Carolina 28255 Attention: VRDN Product Manager Telephone No.: (704) 386-8783 Fax No.: (704) 388-9366 If to the Bank: NationsBank of North Carolina, N.A. 767 5th Avenue, 5th Floor New York, New York 10153 Attention: Christopher C. Browder Telephone No.: (212) 407-5322 Fax No.: (212) 751-6909 Any addressee may designate by giving notice in accordance with the foregoing additional or different addresses or telex or telecopy numbers for purposes of this Section. A copy of any notice to any party given hereunder (with the exception of notices required for drawings under any Series A Letter of Credit) shall be provided to the Remarketing Agent in the manner such notice is otherwise given. Upon the reasonable request of the Borrower (and at the Borrower's expense), (a) the Trustee and the Paying Agent will provide to the Borrower a list of names and addresses of and principal amounts held by the registered owners or Beneficial Owners of the Series A Notes for purposes of enabling the Borrower to obtain any consents or amendments or waivers hereunder and (b) the Remarketing Agent will cooperate in good faith with the Borrower in connection with any solicitation by the Borrower of Beneficial Owners of the Series A Notes relating to any consents or amendments or waivers hereunder; provided, however, that the Borrower covenants that it will use any information obtained from the Trustee, the Paying Agent or the Remarketing Agent regarding the Beneficial Owners of the Series A Notes only for the purpose of obtaining consents, amendments or waivers as required in the Series A Note Agreement; provided further, that the Borrower will not disclose the identity of any of the Beneficial Owners of the Series A Notes to any other Person except with the prior written consent of the Remarketing Agent in each and every instance. The beneficial owner of $1,000,000 or more of Series A Notes may, by written notice to the Paying Agent, request that all notices given with respect to such Series A Notes be given to the registered owner thereof and to a second address provided in such written notice to the Trustee. Upon receipt of such notice described in the preceding sentence, the Trustee shall send all 63 68 notices relating to the relevant Series A Notes to the registered owner and the second address so designated. SECTION 10.02. NOTEHOLDERS' CONSENTS. Any consent or other instrument required by this Agreement to be signed by Noteholders may be in any number of concurrent documents and may be signed by a Noteholder or by the holder's agent appointed in writing. Proof of the execution of such instrument or of the instrument appointing an agent and of the ownership of Series A Notes, if made in the following manner, shall be conclusive for any purposes of this Agreement with regard to any action taken by the Trustee under the instrument: (a) The fact and date of a person's signing an instrument may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within that jurisdiction that the person signing the writing acknowledged before the officer the execution of the writing, or by an affidavit of any witness to the signing. (b) The fact of ownership of Series A Notes, the amount or amounts, numbers and other identification of such Series A Notes and the date of holding shall be proved by the registration books kept by the Paying Agent pursuant to this Agreement. In determining whether the holders of the required principal amount of Series A Notes Outstanding have taken any action under this Agreement, the Trustee will disregard Bank Notes and Bank Notes will be deemed not to be Outstanding for such purpose. In determining whether the Trustee shall be protected in relying on any such action, only Series A Notes which the Trustee knows to be so owned shall be disregarded. SECTION 10.03. NOTICES TO RATING AGENCY. The Trustee shall notify the Rating Agency in writing of the occurrence of any of the following events prior to the proposed effective date thereof: (a) any change in the identity of the Trustee or the Remarketing Agent; (b) any amendment or modification of or change to this Agreement, the Reimbursement Agreement or the Series A Letter of Credit; (c) the expiration or termination of the Series A Letter of Credit, or any extension thereof; (d) the payment in full of the principal of and interest on the Series A Notes; and (e) the delivery of any written opinion of Bankruptcy Counsel required to be delivered pursuant to Section 5.03(b)(i)(B). SECTION 10.04. LIMITATION OF RIGHTS. Nothing expressed or implied in this Agreement or the Series A Notes shall give any person other than the Trustee, the Borrower, the Bank, the Remarketing Agent and the Noteholders any right, remedy or claim under or with respect to this Agreement. 64 69 SECTION 10.05. SEVERABILITY. If any provision of this Agreement shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this Agreement. SECTION 10.06. PAYMENTS DUE ON NON-BUSINESS DAYS. If a payment date is not a Business Day at the place of payment, then payment shall be made at that place on the next succeeding Business Day, with the same force and effect as if made on the payment date, and, in the case of any such payment, no interest shall accrue for the intervening period. SECTION 10.07. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State. SECTION 10.08. COUNTERPARTS. This Agreement may be signed in several counterparts, each of which will be an original and all of which together will constitute the same instrument. SECTION 10.09. BINDING EFFECT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that no party hereto may assign any of its rights or obligations hereunder without the consent of the other parties, the Bank, the Remarketing Agent and the Placement Agent, unless otherwise provided herein. END OF ARTICLE X 65 70 IN WITNESS WHEREOF, the Borrower and the Trustee and Paying Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of November 9, 1994. HANOVER DIRECT, INC. By:_____________________________________ Name:___________________________________ Title:__________________________________ ATTEST By:_________________________________________________________ Title:______________________________________________________ [CORPORATE SEAL] NORWEST BANK MINNESOTA, N.A., AS TRUSTEE AND PAYING AGENT By:_____________________________________ Name: Polly B. Berquist Title: Corporate Trust Officer 66 71 THIS SERIES A NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE REGULATORY AUTHORITY UNDER ANY STATE SECURITIES LAWS AND THEREFORE CANNOT BE RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACT OR APPLICABLE LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS INCLUDING NATIONSBANK OF NORTH CAROLINA, N.A. (THE "BANK"), OR GUARANTEED BY, IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ALTHOUGH NOT GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL AND INTEREST ON THIS SERIES A NOTE AND, IF REMARKETING PROCEEDS ARE NOT AVAILABLE, THE PURCHASE PRICE OF THIS SERIES A NOTE, WILL BE MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT ISSUED BY THE BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING UNDER OTHER SERIES A LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER THAN AGAINST THE BANK. EXHIBIT A FORM OF SERIES A NOTE REGISTERED REGISTERED No. R-............... $...................... HANOVER DIRECT, INC. FLEXIBLE TERM SERIES A NOTES, SERIES A INTEREST RATE MATURITY DATE DATE OF ISSUANCE As Described October 1, 2009 .............................. REGISTERED OWNER: PRINCIPAL AMOUNT: Hanover Direct, Inc., a Delaware corporation (the "Borrower"), for value received, hereby promises to pay, solely from the sources and in the manner hereinafter provided, to the registered owner, or registered assigns or legal representative, upon presentation and surrender hereof at the principal corporate trust office of Norwest Bank Minnesota, N.A., or its successor (in such capacity, the "Paying Agent"), or by wire transfer, as provided in the Series A Note Agreement, as hereinafter defined, the principal sum set forth above on the Maturity Date set forth above, subject to the prior mandatory or optional redemption of this A-1 72 Series A Note as hereinafter provided, and to pay solely from such source interest hereon at the Interest Rate, as hereinafter defined, payable in arrears on the Interest Payment Date, as hereinafter defined, until payment in full and, to the extent permitted by law, interest on overdue installments of such interest, from the Interest Payment Date applicable to this Series A Note next preceding the date on which this Series A Note is authenticated, unless this Series A Note is (a) authenticated before the first Interest Payment Date following the initial delivery of the Series A Notes issued herein, in which case it shall bear interest from the date of such initial delivery or (b) authenticated upon an Interest Payment Date, in which case it shall bear interest from such Interest Payment Date (unless interest on this Series A Note is in default at the time of authentication, in which case this Series A Note shall bear interest from the last date to which interest has been paid). Except as otherwise provided in the Series A Note Agreement, interest hereon shall be paid to the person in whose name this Series A Note is registered on the register of the Paying Agent at the close of business on the Record Date next preceding each Interest Payment Date, by check or draft mailed to such person at his address as it appears on the register maintained by the Paying Agent, or by wire transfer for holders of an aggregate principal amount of at least $500,000, at the request of such holders, as provided in the Series A Note Agreement. Principal and Purchase Price, as hereinafter defined, of and interest on this Series A Note are payable in lawful currency of the United States of America. If any payment hereon is due on a day which is not a Business Day, as hereinafter defined, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the day such payment was due and, in the case of such payment, no interest shall accrue for the intervening period. This Series A Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A Notes"), issued pursuant to a Series A Note Agreement dated as of November 9, 1994 (the "Series A Note Agreement"), between the Borrower and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series A Note Agreement, the Borrower has caused NationsBank of North Carolina, N.A. (the "Bank") to issue its irrevocable Series A Letter of Credit dated the Date of Issuance (as hereinafter defined and as set forth above) of the Series A Notes (the "Series A Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series A Facility Amount and unpaid interest on or Purchase Price of the Series A Notes, but not to exceed $10,145,833, pursuant to a Credit Facilities and Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement Agreement") by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as agent, which Series A Letter of Credit initially expires (subject to extension or earlier termination as provided in the Reimbursement Agreement and the Series A Note Agreement) on November 9, 1994. Substitute letters of credit may be delivered in accordance with the Series A Note Agreement. The Trustee is authorized and A-2 73 directed pursuant to the Series A Note Agreement to make timely draws under the Series A Letter of Credit in accordance with the terms thereof, to the extent necessary to make when due the payments of principal of (whether on the Maturity Date referenced above, by acceleration, or by call for redemption), the Purchase Price of and interest on the Series A Notes, except as otherwise provided in the Series A Note Agreement and the Series A Letter of Credit. Reference is hereby made to the Series A Note Agreement, the Series A Letter of Credit, the Reimbursement Agreement and to all amendments and supplements thereto for a description of the provisions, among others, with respect to the nature and extent of the security, the default provisions, the rights, duties and obligations of the Borrower and the Trustee and the rights of the holders of the Series A Notes and the terms upon which the Series A Notes are issued and secured. The Series A Notes are issuable in registered form without coupons in denominations of $100,000 or any integral multiple of $100,000 in excess thereof (the "Authorized Denominations"). This Series A Note, upon surrender hereof at the principal corporate trust office of the Paying Agent with a written instrument of transfer satisfactory to the Paying Agent duly endorsed for transfer or accompanied by an assignment duly executed by the holder hereof or his attorney duly authorized in writing and, in either case, with an appropriate guarantee of signature conforming to the requirements of the assignment attached hereto, may, at the option of the holder hereof, be exchanged for Series A Notes of the same aggregate principal amount and tenor as the Series A Notes being exchanged and of any Authorized Denomination. This Series A Note is transferable as provided in the Series A Note Agreement, subject to certain limitations therein contained, only upon the register of the Paying Agent, and only upon surrender of this Series A Note for transfer to the Paying Agent duly endorsed for transfer or accompanied by a written instrument of transfer (in substantially the form of the assignment attached hereto) duly executed by the holder hereof or his duly authorized attorney. Thereupon, one or more new Series A Notes of any Authorized Denomination or Authorized Denominations and in the same aggregate principal amount and tenor as the Series A Note surrendered will be issued to the designated transferee or transferees. The person in whose name this Series A Note is registered shall be deemed and regarded as the absolute owner hereof for any purpose, as provided in and as qualified by the Series A Note Agreement. The Paying Agent or NationsBank of North Carolina, N.A., as Remarketing Agent (the "Remarketing Agent"), may make appropriate arrangements for some or all of the Series A Notes to be issued or held by means of a book-entry system administered by a Securities Depository, as hereinafter defined, with no physical distribution of Series A Notes made to the public (other than those Series A Notes, if any, not held under such book-entry system). Initially, all of the Series A Notes will be held by means of a book-entry system administered by the Securities Depository. One Series A Note certificate in registered form A-3 74 will be issued for the Series A Notes in the aggregate principal amount of $10,000,000, and will be registered in the name of the Securities Depository Nominee and will be deposited with the Paying Agent. Thereafter, in the event that Series A Notes are issued to the Beneficial Owners thereof in certificated (physical) form (and in each and every case thereafter in which a change in the principal amount of Series A Notes held pursuant to a book-entry system is made), the Paying Agent will take all actions necessary to comply with the Balance Certificate Agreement dated as of the date hereof between Norwest Bank Minnesota, N.A., as transfer agent, and the Securities Depository, which agreement governs the mechanisms for the registration of transfer of Series A Note certificates registered in the name of the Securities Depository Nominee. With respect to any Series A Notes that are held by means of a book-entry system, such book-entry system will evidence beneficial ownership of the Series A Notes so held in Authorized Denominations (or, as applicable, positions held by the Participants, beneficial ownership being evidenced in the records of such Participants). Registration and transfers of ownership shall be effected on the records of the Securities Depository and the Participants, as applicable, pursuant to rules and procedures established by the Securities Depository and the Participants. Subject to the provisions of Section 7.09 of the Series A Note Agreement relating to the Bank as holder of the Series A Notes, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series A Notes, (ii) notices and (iii) voting, subject to certain qualifications as stated in the Series A Note Agreement. Transfer of principal, interest and Purchase Price payments to beneficial owners of the Series A Notes so held will be the responsibility of the Securities Depository and the Participants. The Borrower, the Trustee, the Bank and the Paying Agent will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by the Securities Depository, the Securities Depository Nominee or the Participants. While the Securities Depository Nominee is the owner of the Series A Notes so held, notwithstanding the provision hereinabove contained, payments of principal and Purchase Price of and interest on such Series A Notes shall be made in accordance with the Letter of Representations dated as of November 9, 1994 among the Borrower, the Trustee, the Remarketing Agent and Paying Agent and received and accepted by the Securities Depository. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE AND TRANSFER OF OWNERSHIP IS MAINTAINED WITH RESPECT TO THIS SERIES A NOTE IN ACCORDANCE WITH THE TERMS OF THE SERIES A NOTE AGREEMENT, (1) THE PROVISIONS OF THIS SERIES A NOTE RELATING TO THE DELIVERY OF PHYSICAL SERIES A NOTES SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED WITH REGARD TO THIS SERIES A NOTE AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM AND (2) THE PROVISIONS A-4 75 OF THIS SERIES A NOTE RELATING TO ISSUANCE, PAYMENTS OF PRINCIPAL, PURCHASE PRICE AND INTEREST, AND ESTABLISHMENT OF INTEREST RATES AND INTEREST PERIODS WITH RESPECT TO THE SERIES A NOTES SHALL BE APPLICABLE TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES A NOTES IN AUTHORIZED DENOMINATIONS TO THE SAME EXTENT AS SUCH PROVISIONS ARE APPLICABLE TO REGISTERED OWNERSHIP INTERESTS IN THE SERIES A NOTES. In the event that a book-entry system of evidence and transfer of ownership of the Series A Notes is discontinued pursuant to the provisions of the Series A Note Agreement, the Series A Notes shall be delivered solely in registered form without coupons in the Authorized Denominations, shall be lettered "R" and numbered separately from 1 upward, and shall be payable, executed, authenticated, registered, exchanged and cancelled pursuant to the provisions hereof and of the Series A Note Agreement. All references herein to time shall be Charlotte, North Carolina time unless otherwise expressly stated herein. Except as otherwise specifically provided herein, all capitalized words and terms shall have the same meaning when used herein as set forth in the Series A Note Agreement. 1. CERTAIN DEFINITIONS. "BUSINESS DAY" means any day other than (a) Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or in the city or cities in which the corporate trust office of the Trustee or the Paying Agent, the primary office of the Remarketing Agent or the Placement Agent or the paying office of the Bank are authorized by law or executive order to close or (c) a day on which the New York Stock Exchange is closed. For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series A Letter of Credit. "DATE OF ISSUANCE" means the date upon which the Series A Notes are issued, authenticated and delivered in accordance with the terms and conditions of Section 2.06 of the Series A Note Agreement. "INTEREST PAYMENT DATE" means the first day after the last day of each Interest Period. "INTEREST PERIOD" means, with respect to any Series A Note, each period of between one (1) and one hundred eighty (180) days established from time to time by the Remarketing Agent in accordance with the Interest Period determination method described in Section 2.02(a) of the Series A Note Agreement. A-5 76 "INTEREST RATE" means, with respect to any Series A Note, the interest rate on such Series A Note determined from time to time by the Remarketing Agent in accordance with the Interest Rate determination method described in Section 2.02(a) of the Series A Note Agreement. In no event shall the Interest Rate exceed the lesser of fifteen percent (15%) per annum or the highest interest rate which may be borne by the Series A Notes under applicable law. "PARTICIPANTS" means securities brokers and dealers, banks, trust companies and clearing corporations which have access to the Securities Depository's system. "PURCHASE DATE" means, with respect to any Series A Notes, the date on which such Series A Notes are required to be purchased pursuant to the terms and conditions of Section 3.07(a) of the Series A Note Agreement. "PURCHASE PRICE" means an amount equal to 100% of the principal amount of any Series A Note tendered or deemed tendered to the Trustee for purchase pursuant to the terms and conditions of Section 3.07 of the Series A Note Agreement, plus accrued and unpaid interest thereon to, but excluding, the Purchase Date. "RECORD DATE" means, with respect to each Interest Payment Date, the Trustee's close of business on the Business Day next preceding such Interest Payment Date. "SECURITIES DEPOSITORY" means, initially, The Depository Trust Company, or any successor or substitute securities depository selected by the Borrower (with the consent of the Trustee and the Remarketing Agent), which shall maintain a book-entry system in respect of the Series A Notes. "SECURITIES DEPOSITORY NOMINEE" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the register maintained by the Paying Agent the Series A Note certificate to be delivered to and immobilized with the Paying Agent during continuation with such Securities Depository of participation in its book-entry system, and shall initially be Cede & Co., nominee of The Depository Trust Company. 2. INTEREST ON THE SERIES A NOTES. The Series A Notes will bear interest at the Interest Rate from the Date of Issuance until paid in full. Interest accrued on each Series A Note shall be paid on the applicable Interest Payment Date therefor. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed over a year of 360 days. The initial Interest Period and corresponding Interest Rate for each Series A Note will be determined by the Remarketing Agent on the Date of Issuance. After the initial determination of the Interest Period and corresponding Interest Rate, the applicable Interest Period and corresponding Interest Rate shall be determined by the A-6 77 Remarketing Agent at the time and in the manner specified in Section 2.02 of the Series A Note Agreement. The Remarketing Agent's determination of the Interest Periods and Interest Rates shall be conclusive and binding on the Noteholders, the Paying Agent, the Remarketing Agent, the Borrower, the Bank and the Trustee. The Remarketing Agent will notify the Paying Agent in writing (which may be in telecopy form) or by telephone promptly confirmed in writing by 10:00 a.m. on the first Business Day of each Interest Period with respect to any Series A Note, of the identity of such Series A Note, the length of such Interest Period, the Interest Rate therefor and the principal amount of such Series A Note, and, upon the request of the Borrower or the Bank, the Paying Agent shall promptly (but in no event later than the end of such Business Day) after its receipt of such information, forward such information to the Borrower and the Bank. The failure by the Remarketing Agent or the Paying Agent, as applicable, to give any such notice shall not affect the change in the Interest Period and/or Interest Rate. The calculation of interest payable on the Series A Notes as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders, absent manifest error. Neither the Remarketing Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Trustee, the Paying Agent, the Bank or any Noteholder for any action taken or not taken by the Remarketing Agent or any of its directors, officers, agents or employees in connection with the determination of the Interest Period and Interest Rate for each Series A Note pursuant to the Series A Note Agreement, in the absence of its own negligence or willful misconduct. 3. REDEMPTION OF SERIES A NOTES. (a) OPTIONAL REDEMPTION. The Series A Notes are subject to redemption at the option of the Borrower, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date; provided that any such redemption in part shall be in a minimum principal amount of $100,000. (b) MANDATORY SINKING FUND REDEMPTION. The Series A Notes are subject to mandatory sinking fund redemption prior to the Maturity Date, in part, with the Series A Notes to be redeemed being selected pursuant to Section 3.03, at a redemption price equal to the principal amount thereof, on October 1, or if any such date is not a Business Day, on the next succeeding Business Day with the same force and effect, in the years and in the principal amounts indicated below: A-7 78
REDEMPTION DATE PRINCIPAL (OCTOBER 1) AMOUNT ----------- ------ 1996 $500,000 1997 500,000 1998 500,000 1999 500,000 2000 800,000 2001 800,000 2002 800,000 2003 800,000 2004 800,000 2005 800,000 2006 800,000 2007 800,000 2008 800,000 2009 800,000
(c) MANDATORY REDEMPTION ON EXPIRATION OR TERMINATION OF SERIES A LETTER OF CREDIT WITHOUT EXTENSION OR PROVIDING A SUBSTITUTE SERIES A LETTER OF CREDIT. The Series A Notes are subject to mandatory redemption in whole on the fifth (5th) Business Day prior to the stated date of expiration or termination of the Series A Letter of Credit, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date, unless by the twentieth (20th) day prior to such redemption date the Borrower provides to the Trustee, and the Trustee has accepted, (1) evidence that such Series A Letter of Credit has been extended or (2) a Substitute Series A Letter of Credit to be effective on or prior to such redemption date. (d) REDEMPTION DATE. The redemption date for Series A Notes to be redeemed as described in paragraph 3(a) above must be an Interest Payment Date with respect to the Series A Notes being redeemed. The redemption date for mandatory redemptions will be as specified in paragraph 3(b) or (c) above, as the case may be, or determined by the Trustee or the Remarketing Agent consistently with the provisions thereof and of the Series A Note Agreement. (e) SELECTION OF SERIES A NOTES TO BE REDEEMED. Except as otherwise provided herein or in Section 3.03 of the Series A Note Agreement, if fewer than all the Series A Notes are to be redeemed, the Remarketing Agent will select the Series A Notes to be redeemed by lot or such other method as it deems in its sole discretion to be fair and appropriate and shall notify the Paying Agent (which notice may be provided by telephone, immediately confirmed in writing by legible facsimile transmission, registered or certified mail, overnight express delivery, or other secure means) of the holders and denominations of Series A Notes to be redeemed; provided, however, that in selecting Series A Notes to be redeemed the Remarketing Agent shall (i) select only Series A Notes not previously A-8 79 called for redemption, (ii) select Bank Notes prior to any other Series A Notes, and (iii) with respect to any mandatory sinking fund redemption as described in paragraph 3(b) above, select the Series A Notes to be redeemed on or before the sixtieth (60th) day prior to the redemption date, and in making such selection take into account the duration of the Interest Periods with respect to such Series A Notes. In the event the Remarketing Agent fails to notify the Paying Agent of the Series A Notes to be redeemed on or before the ninth (9th) Business Day prior to the redemption date, the Paying Agent shall proceed to select Series A Notes for redemption from among the Outstanding Series A Notes in the chronological order in which their Purchase Dates occur, beginning with the earliest Purchase Date; provided, however, that in selecting Series A Notes to be redeemed the Paying Agent shall (i) select only Series A Notes not previously called for redemption and (ii) select Bank Notes prior to any other Series A Notes. If fewer than all Series A Notes having the same Purchase Date (selected for redemption as provided in the immediately preceding sentence) are to be redeemed, the Paying Agent shall treat each owner of Series A Notes as the owner of one Series A Note for purposes of selection for redemption, and shall select Series A Notes for redemption by lot or such other method as it deems fair and appropriate, (1) from among the holders of less than $1,000,000 in aggregate principal amount, provided that if there are no such holders, or if, after selection from among such holders such selection has not resulted in redemption of a sufficient amount of Series A Notes, then (2) from among the holders of $1,000,000 or more in aggregate principal amount of Series A Notes. No portion of a Series A Note may be redeemed that would result in a Series A Note which is smaller than the then permitted minimum Authorized Denomination. For this purpose, the Remarketing Agent or the Paying Agent will consider each Series A Note in a denomination larger than the minimum denomination permitted by the Series A Notes at the time to be separate Series A Notes each in the minimum denomination. (f) NOTICE OF REDEMPTION. The Trustee will prepare and cause the Paying Agent to send notice of each redemption to each Noteholder whose Series A Notes are being redeemed, the Borrower, the Remarketing Agent and the Bank by first-class mail at least seven (7) Business Days but not more than sixty (60) (or twenty (20), in the case of a mandatory redemption pursuant to paragraph 3(c) above) days before each redemption. The notice shall identify the Series A Notes or portions thereof to be redeemed and will state: (i) the type of redemption and the redemption date, (ii) the redemption price, (iii) that the Series A Notes called for redemption must be surrendered to collect the redemption price, (iv) the address of the Paying Agent at which the Series A Notes must be surrendered, (v) that interest on the Series A Notes called for redemption ceases to accrue on the redemption date, (vi) the CUSIP number of the Series A Notes called for redemption and (vii) any condition to the redemption. Failure by the Trustee or the Paying Agent to give any notice of redemption as to any particular Series A Notes will not affect the validity of the call for redemption of any Series A Notes in respect of which no such failure has occurred. Any notice mailed as provided in the Series A Notes will be A-9 80 conclusively presumed to have been given whether or not actually received by any holder or beneficial owner. (g) EFFECT OF REDEMPTION. On the date fixed for redemption, notice having been given in the manner and under the conditions provided in the Series A Note Agreement, the Series A Notes or portions thereof called for redemption shall be due and payable at the redemption price provided therefor, plus accrued interest to such date. On such redemption date, if moneys sufficient to pay the redemption price of the Series A Notes to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Paying Agent, interest on the Series A Notes called for redemption shall cease to accrue; such Series A Notes shall cease to be entitled to any benefits or security under the Series A Note Agreement or to be deemed Outstanding; and the holders and beneficial owners of such Series A Notes shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to, but excluding, the date of redemption. (h) SERIES A NOTES REDEEMED IN PART. Upon surrender of a Series A Note redeemed in part, the Paying Agent will authenticate for the holder a new Series A Note or Series A Notes equal in principal amount to the unredeemed portion of the Series A Note surrendered. 4. PURCHASE OF SERIES A NOTES. (a) MANDATORY PURCHASE OF SERIES A NOTES; NOTICE. Except as provided in paragraph 4(c) below, Series A Notes are subject to mandatory purchase at the Purchase Price: (i) on each Interest Payment Date applicable to such Series A Note; and (ii) on the effective date of any Substitute Series A Letter of Credit delivered in accordance with the terms and conditions of the Series A Note Agreement, if, but only if, such Substitute Series A Letter of Credit will result in a Credit Modification. The Trustee will prepare and cause the Paying Agent to send written notice of each mandatory purchase described in paragraph 4(a)(ii) above (a "Notice of Mandatory Purchase") to each Noteholder whose Series A Notes are being purchased, the Remarketing Agent, the Bank and the Borrower at least 15 days but not more than 60 days before the Purchase Date. No Notice of Mandatory Purchase will be given to holders or beneficial owners of Series A Notes if the mandatory purchase is being made as described in paragraph 4(a)(i) above. (b) PAYMENT FOR PURCHASED SERIES A NOTES. The Purchase Price of Series A Notes to be purchased on a Purchase Date shall be paid from Remarketing A-10 81 Proceeds available to pay the Purchase Price of such Series A Notes and, to the extent Remarketing Proceeds are not available to pay the Purchase Price of such Series A Notes, from proceeds of a draw on the Series A Letter of Credit pursuant to the applicable provisions of Section 5.02(a)(iv) of the Series A Note Agreement. To the extent that sufficient moneys have been made available therefor to the Paying Agent or the Remarketing Agent, as applicable, by 3:45 p.m. on the Purchase Date pursuant to Sections 3.08 and 5.02 of the Series A Note Agreement, upon surrender to the Paying Agent of Series A Notes called for mandatory purchase as provided in the Series A Note Agreement, the Purchase Price therefor shall be paid in immediately available funds by the Paying Agent's or the Remarketing Agent's, as applicable, close of business on the Purchase Date. From and after the Purchase Date or, if later, the date on which such moneys are made available to the Paying Agent or the Remarketing Agent, as applicable, interest accruing on such Series A Notes shall cease to be payable to the prior holder thereof, such Series A Notes shall cease to be entitled to the benefits of the Series A Note Agreement and to such extent the prior holder shall have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of such Series A Notes as provided in Section 4.03 of the Series A Note Agreement. Notwithstanding any provision to the contrary herein or in the Series A Note Agreement, for so long as the Series A Notes are held pursuant to a book-entry system maintained by DTC, payments of Purchase Price with respect to such Series A Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) LIMITATION ON TENDERS. The holders shall not be required to tender any Series A Note for purchase on a Purchase Date if on such date, following the occurrence of an Event of Default, the Trustee shall have declared the principal of and interest on the Series A Notes immediately due and payable pursuant to Section 7.02 of the Series A Note Agreement. (d) In the event that any Series A Note purchased pursuant to a mandatory purchase is not delivered by the holder thereof on the date such Series A Note is purchased, the Borrower shall execute (if necessary) and the Paying Agent will authenticate and deliver a new Series A Note of like aggregate principal amount as the Series A Note purchased, the Series A Note purchased shall no longer be deemed outstanding and the owner thereof shall be entitled to receive only those funds held on deposit with respect thereto, and the new Series A Note shall, for all purposes of the Series A Note Agreement, be deemed to evidence the same debt as the Series A Note purchased and shall be remarketed, delivered and registered in accordance with the terms of this Series A Note and the Series A Note Agreement. 5. REMARKETING OF PURCHASED SERIES A NOTES. (a) REMARKETING EFFORT. Except as otherwise provided in Section 3.08(a) of the Series A Note Agreement, the Remarketing Agent will use reasonable best efforts to remarket on the Purchase Date all Series A Notes purchased in accordance with the terms A-11 82 of Section 3.07 of the Series A Note Agreement and, to the extent such purchased Series A Notes are not remarketed on the Purchase Date, thereafter will continue to use reasonable best efforts to remarket such purchased Series A Notes, upon the terms and subject to the conditions of the Remarketing Agreement. (b) REMARKETING PROCEEDS. To the extent the Remarketing Agent has remarketed Series A Notes and has received funds representing a payment for such Series A Notes (the "Remarketing Proceeds") from the purchasers thereof, the Remarketing Agent will promptly forward the Remarketing Proceeds by wire transfer (or in such other manner as is acceptable to the Remarketing Agent) to the holders tendering such Series A Notes for purchase (or, if required pursuant to Section 3.08(b) of the Series A Note Agreement, to the Paying Agent). Except as otherwise provided below with respect to Bank Notes, until such transfer, all such Remarketing Proceeds shall be deposited in a separate, segregated account of the Remarketing Agent (or, if transferred to the Paying Agent as provided in the Series A Note Agreement, in a separate, segregated account of the Paying Agent) for application in accordance with the applicable provisions of Section 3.08(b) of the Series A Note Agreement, and until so applied shall be held in trust for the benefit of the holders tendering such Series A Notes for purchase. Notwithstanding any provision to the contrary herein or in the Series A Note Agreement, for so long as the Series A Notes are held pursuant to a book-entry system maintained by DTC, payments of Remarketing Proceeds with respect to such Series A Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) DELIVERY OF PURCHASED SERIES A NOTES. Series A Notes purchased with Remarketing Proceeds (other than Bank Notes) shall be delivered to the purchasers thereof upon receipt of payment therefor. Prior to such delivery, the Paying Agent shall provide for registration of transfer to the Holders, as provided in a written notice from the Remarketing Agent. 6. MONEYS TO BE HELD IN TRUST. All proceeds of a draw on the Series A Letter of Credit received by the Trustee and all money that the Trustee or the Paying Agent shall hold in, or shall have withdrawn from, the Series A Letter of Credit Fund or shall have received from any other source and set aside for the purpose of paying any of the Series A Notes, either on the Maturity Date set forth above or by purchase (other than as provided in Section 3.08 of the Series A Note Agreement regarding remarketing of Series A Notes) or call for redemption or for the purpose of paying any interest on the Series A Notes, shall be held in trust for the respective holders or beneficial owners of the Series A Notes. Moneys received by the Remarketing Agent, the Paying Agent or the Trustee from the sale of a Series A Note under Section 3.08 of the Series A Note Agreement regarding remarketing of Series A Notes or from the purchase of any Series A Note will be held segregated from other funds held by the Remarketing Agent, the Paying Agent or the Trustee for the benefit of the Person from whom such Series A Note was purchased and will not be invested while so held. Any money that is so set aside and that remains unclaimed by the holders or beneficial owners for a period of five (5) years after the date on which such Series A Notes A-12 83 have become payable shall be remitted to the Borrower and thereafter the holders or beneficial owners shall look only to the Borrower for payment and then only to the extent of the amounts so received, without any interest thereon, and the Trustee, the Remarketing Agent, the Paying Agent and the Bank shall have no responsibility with respect to such money. 7. DEFAULTS AND REMEDIES. Upon the occurrence of certain events, and on the conditions, in the manner and with the effect set forth in Article VII of the Series A Note Agreement, the principal of all Series A Notes then outstanding under the Series A Note Agreement may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Series A Note Agreement directs the Trustee to declare an acceleration upon notice by the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement, and upon the occurrence of certain other Events of Default under the Series A Note Agreement. The Trustee has the right to accelerate the entire unpaid principal of and interest on the Series A Notes in certain events only with the Bank's consent, all as provided in more detail in Article VII of the Series A Note Agreement to which reference is hereby made. The owner of this Series A Note shall have no right to enforce the provisions of the Series A Note Agreement or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Series A Note Agreement, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Series A Note Agreement and except that any registered owner may institute action to enforce the payment of the principal of or interest on his Series A Note. 8. MISCELLANEOUS. Modifications or alterations of the Series A Note Agreement may be made only to the extent and in the circumstances permitted by Article IX of the Series A Note Agreement. Executed counterparts of the Series A Note Agreement are on file at the principal corporate trust office of the Trustee. The holder of this Series A Note, by acceptance hereof, consents to all of the terms and provisions of the Series A Note Agreement. It is hereby certified that all acts, conditions and things required to happen, exist and be performed under the laws of the State of New York, and under the Series A Note Agreement precedent to and in connection with the issuance of this Series A Note have happened, exist and have been performed as so required, and that the issuance, authentication and delivery of this Series A Note have been duly authorized by the Borrower. Unless the Certificate of Authentication hereto has been executed by the Paying Agent by manual signature of one of its Responsible Officers, this Series A Note shall not be entitled to any benefit under the Series A Note Agreement, or be valid or obligatory for any purpose. A-13 84 IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this Series A Note to be executed in its name and on its behalf by the manual or facsimile signature of the President and Treasurer and attested by manual or facsimile signature of the Secretary or Assistant Secretary and sealed with the corporate seal of Hanover Direct, Inc., all as of the Date of Issuance set forth above. HANOVER DIRECT, INC. By: /s/ Jack Rosenfeld ____________________________________ Name: Jack Rosenfeld Title: President and CEO ATTEST: By:________________________________ Name:______________________________ Title:_____________________________ [CORPORATE SEAL] By: /s/ Edward J. O'Brien ____________________________________ Name: Edward J. O'Brien Title: Senior Vice President and Treasurer A-14 85 CERTIFICATE OF AUTHENTICATION This Series A Note is one of the Series A Notes issued under the provisions of the within-mentioned Series A Note Agreement. NORWEST BANK MINNESOTA, N.A., as Paying Agent By:_____________________________________ Responsible Officer Dated:______________ A-15 86 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________________________________________________________ (PLEASE PRINT OR TYPE THE NAME AND ADDRESS, INCLUDING THE ZIP CODE OF THE TRANSFEREE, AND THE FEDERAL TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) the within Series A Note and all rights thereunder, and hereby irrevocably constitutes and appoints _______________ Attorney to transfer the within Series A Note on the books kept for registration and transfer thereof, with full power of substitution in the premises. Dated:______________ By:_____________________________________ NOTICE: The signature of the Registered Owner above must correspond with the name of the Registered Owner as it appears on the registration books maintained by the Paying Agent. Signature Guaranteed By:_________________ NOTICE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. A-16 87 EXHIBIT B NOTICE OF MANDATORY REPURCHASE TO THE OWNERS OF $10,000,000 HANOVER DIRECT, INC. FLEXIBLE TERM NOTES, SERIES A NOTICE IS HEREBY GIVEN pursuant to Section 3.07 of the Series A Note Agreement dated as of November 9, 1994 (the "Agreement") between Hanover Direct, Inc. (the "Borrower") and Norwest Bank Minnesota, N.A., as trustee and paying agent (the "Trustee" and the "Paying Agent", as applicable), that the above-referenced Series A Notes are subject to mandatory purchase on [DATE] (the "Purchase Date"). The Series A Letter of Credit currently in effect is [DESCRIPTION OF Series A Letter of Credit]. Such Series A Letter of Credit will expire/be terminated and replaced with [DESCRIPTION OF SUBSTITUTE Series A Letter of Credit] on [EFFECTIVE DATE]. [DESCRIBE TERMS OF NEW Series A Letter of Credit]. [The existing rating or ratings assigned to the Series A Notes will be reduced to [RATING/RATINGS]/withdrawn due to the termination/expiration and replacement of the Series A Letter of Credit currently in effect.] The Series A Notes are subject to mandatory purchase on the Purchase Date at a Purchase Price of 100% of the principal amount of Series A Notes being purchased plus interest accrued to, but excluding, the Purchase Date. The owners are required to tender their Series A Notes, properly endorsed to the Paying Agent by 10:00 a.m. on the Purchase Date. All purchases will be made in immediately available funds on the Purchase Date. From and after the Purchase Date, interest accruing on the Series A Notes shall cease to be payable to the prior holder thereof, the Series A Notes shall cease to be entitled to the benefits of the Agreement and the prior holder will have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of the Series A Notes. All terms used herein which are not defined herein shall have the meanings assigned to them in the Agreement. Dated: NORWEST BANK MINNESOTA, N.A., AS PAYING AGENT FOR HANOVER DIRECT, INC. By:_____________________________________ Title:__________________________________ B-1 EX-10.43 16 PLACEMENT AGREEMENT, DATED AS OF NOVEMBER 9, 1994 1 Exhibit 10.43 PLACEMENT AGREEMENT This PLACEMENT AGREEMENT, dated as of November 9, 1994, by and between HANOVER DIRECT, INC., a corporation organized and existing under the laws of the State of Delaware (the "Borrower"), and NATIONSBANK OF NORTH CAROLINA, N.A., a national banking association (the "Placement Agent"); W I T N E S S E T H: WHEREAS, the Borrower intends to issue and sell from time to time its interest bearing flexible term notes in an aggregate principal amount not to exceed Twenty Million Dollars ($20,000,000) (the "Facility Amount") in two separate series (the first series of such notes being hereinafter referred to as the "Series A Notes," the second series of such notes being hereinafter referred to as the "Series B Notes" and the Series A Notes and the Series B Notes being hereinafter collectively referred to as the "Notes") each in an aggregate principal amount not to exceed Ten Million Dollars ($10,000,000), pursuant to the provisions of a Series A Note Agreement dated as of November 9, 1994 (the "Series A Note Agreement") by and between the Borrower and Norwest Bank Minnesota, N.A. (the "Trustee" or the "Paying Agent," as applicable), and the Series B Note Agreement to be entered into among the Borrower, the Trustee and the Paying Agent (the "Series B Note Agreement"; the Series A Note Agreement and the Series B Note Agreement being hereinafter collectively referred to as the "Note Agreement"), and to use the proceeds from such issuance and sale to refinance and/or finance certain construction, refurbishment and related costs of an approximately 500,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California (the "Project"); and WHEREAS, the payment when due of the principal of, interest on and Purchase Price (as defined in the Note Agreement) of the Series A Notes will be supported, to the extent provided therein, by the Series A Letter of Credit and the payment when due of the principal of, interest on and Purchase Price of the Series B Notes will be supported, to the extent provided therein, by the Series B Letter of Credit (the Series A Letter of Credit and the Series B Letter of Credit are sometimes hereinafter collectively referred to as the "Letter of Credit"), each issued in favor of the Trustee by NationsBank of North Carolina, N.A. (the "Bank") and each in an amount of not less than $10,145,833, representing the principal amount of the applicable series of Notes plus 35 days interest on such amount computed at the Maximum Rate (as defined in the Note Agreement) on the basis of actual number of days elapsed in a year of 360 days, all pursuant to a Credit Facilities and Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement Agreement") by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as Agent; and 2 WHEREAS, the Series A Notes are more fully described in the preliminary private placement memorandum dated October 25, 1994 and the private placement memorandum dated November 9, 1994 (collectively, the "Series A Placement Memorandum") prepared in connection with the initial placement of the Notes; and WHEREAS, the Series B Notes will be more fully described in a Preliminary Private Placement Memorandum to be dated approximately seven days prior to the issuance of the Series B Notes and a Private Placement Memorandum to be dated the date of issuance of the Series B Notes (collectively, the "Series B Placement Memorandum"; the Series A Placement Memorandum and the Series B Placement Memorandum are hereinafter sometimes collectively referred to as the "Placement Memorandum") prepared in connection with the initial placement of the Series B Notes; and WHEREAS, the Borrower has requested that the Placement Agent act as its agent hereunder to perform certain services in connection with the placement of the Notes upon issuance thereof, and the Placement Agent is willing to accept such appointment and perform such services on the terms and subject to the conditions set forth herein and in the Note Agreement; NOW, THEREFORE, for and in consideration of the covenants herein made, and upon the terms and subject to the conditions herein set forth, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used herein and not otherwise herein defined shall have the meanings ascribed to them in the applicable Note Agreement. SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. The Borrower represents and warrants to, and agrees with, the Placement Agent that: (a) Each of the Borrower's representations and warranties contained in the Note Agreement and the Reimbursement Agreement are true and correct on and as of the date hereof and are hereby made to the Placement Agent as if set forth herein. (b) The Borrower has taken all necessary corporate action to authorize, execute and deliver this Agreement, the Note Agreement, the Notes and the other documents and agreements (including, without limitation, the Reimbursement Agreement and the Remarketing Agreement) executed and delivered (or to be executed and delivered) in connection with the issuance of the Notes and the other transactions contemplated hereby (collectively, the "Related Documents") to which it is or is to be, a party, and this Agreement has been duly executed and delivered and constitutes, and the Note Agreement, the Notes and the Related Documents to which it is or is to be a party when duly executed and delivered by the Borrower, will constitute the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms except as the enforceability thereof may be limited -2- 3 by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and the application of general principles of equity. (c) There is no action, suit, proceeding or inquiry, or, to the best knowledge and information of the Borrower, any investigation, at law or in equity, or before or by any court, public board or body or other governmental authority, pending or, to the best knowledge and information of the Borrower, threatened against or affecting the Borrower wherein an unfavorable decision, ruling or finding could materially adversely affect the condition (financial or otherwise) of the Borrower, or the transactions contemplated by this Placement Agreement or the Placement Memorandum, or that in any manner raises any question concerning the legality, validity or enforceability of this Placement Agreement, the Notes, the Note Agreement or any Related Document, nor to the best knowledge and belief of the Borrower is there any basis therefor. (d) The execution, delivery and performance by the Borrower of this Placement Agreement, the Note Agreement, the Notes and the Related Documents are within the powers of the Borrower and do not and will not conflict with or violate the articles of incorporation or bylaws of the Borrower or any order, injunction, ruling or decree by which the Borrower or its property is bound, and do not and will not constitute a breach of or default under any agreement, indenture, mortgage, lease, note or other obligation, instrument or arrangement to which the Borrower is a party or by which the Borrower or any of its property is bound, or contravene or constitute a violation of any federal or state constitutional or statutory provision, rule or regulation to which the Borrower or any of its property is subject, the breach, default, contravention or violation of which could have a material adverse effect on the business or financial condition of the Borrower, and no approval or other action by, or filing or registration with, any governmental authority or agency is required in connection therewith that has not been obtained or accomplished or will not be obtained or accomplished by the date hereof. (e) The information relating to the Borrower and the Project contained or incorporated by reference in the Placement Memorandum or otherwise supplied by the Borrower in writing for inclusion therein, including, without limitation, Appendix B thereto, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Borrower has approved of the use and distribution of the Placement Memorandum in connection with the placement and remarketing of the Notes from time to time. (f) The Borrower is not in default in the payment of the principal of or interest on any other of its indebtedness for borrowed money or under any instrument under or subject to which any indebtedness has been incurred and no event has occurred and is continuing that, with the lapse of time or the giving of notice or both, would constitute an event of default under any such instrument. -3- 4 (g) The Borrower agrees to make available to the Placement Agent, without cost, sufficient copies of any relevant documents pertaining to the Borrower, as reasonably may be required from time to time for the prompt and efficient performance by the Placement Agent of its obligations hereunder, including its obligations in connection with the placement of the Notes from time to time. SECTION 3. PLACEMENT OF THE NOTES. The Placement Agent shall, as the agent of the Borrower, arrange to place the Notes with investors, each of which shall be an "accredited investor" within the meaning of Rule 501(a) of Regulation D of the Securities Exchange Commission (the "Purchasers"), on or before each Date of Issuance. The Purchasers are to purchase the Notes at a price equal to 100% of the principal amount thereof. It is understood that the purchase of the Notes by the Purchasers is subject to (a) on the Date of Issuance of the Series A Notes, (i) receipt by the Placement Agent of: opinions of counsel to the Bank and the Borrower meeting the requirements specified in Section 2.06(a) of the Series A Note Agreement; a letter from any Rating Agency evidencing a rating on the Series A Notes satisfactory to the Placement Agent; a certified copy of resolutions of the board of directors of the Borrower authorizing the execution, delivery and performance by the Borrower of this Agreement, the Note Agreement, the Notes and the Related Documents to which it is a party; executed copies (or duplicates thereof) of the Related Documents, each of which shall be in form and substance satisfactory to the Placement Agent, and such other documents, instruments and approvals (and, if requested by the Placement Agent, certified duplicates of executed copies thereof) and opinions as the Placement Agent may reasonably request; and (ii) satisfaction of the other conditions specified in Section 2.06(a) of the Series A Note Agreement and in the Related Documents; and (b) on the Date of Issuance of the Series B Notes, satisfaction of the conditions specified in Section 2.06(a) of the Series B Note Agreement. Purchasers shall be required to deposit the purchase price of Notes with the Placement Agent on or before each Date of Issuance for transfer by the Placement Agent on such Date of Issuance as provided in Section 4 below. The Borrower hereby approves the Placement of the Notes by the Placement Agent from time to time to prospective Purchasers on the terms set forth herein. The Placement Agent may execute and perform any of its duties hereunder or under the Note Agreement through agents, attorneys, employees or co-placement agents and shall not be responsible for the misconduct or negligence of any agent, attorney, employee or co-placement agent appointed with due care. SECTION 4. NOTE PROCEEDS. The Placement Agent agrees that it will, on the applicable Date of Issuance, transfer to or at the direction of the Borrower all proceeds from the sale of Notes issued from time to time under the Note Agreement, but only to the extent that each Purchaser has deposited the purchase price of the Notes to be purchased by it with the Placement Agent. If any Purchaser does not deposit with the Placement Agent the purchase price of the Notes to be purchased by it or otherwise refuses to purchase the Notes to be purchased -4- 5 by it, the Placement Agent will use its best efforts to arrange for a substitute Purchaser for such Notes on the terms set forth in Section 3 above. SECTION 5. LIMITATION. Nothing contained in this Placement Agreement shall obligate the Placement Agent to purchase the Notes in the event any Purchaser fails to pay the purchase price of any Notes to be purchased by it or in the event the Placement Agent is unable to arrange for the purchase of any of the Notes. SECTION 6. FEES AND EXPENSES. (a) On each Date of Issuance, upon consummation of the transfer of all proceeds from the sale of the Notes issued on such Date of Issuance as provided in Section 4 above, the Borrower agrees to pay the Placement Agent a fee for its services hereunder as set forth in that certain Engagement Letter dated July 15, 1994 from the Placement Agent to the Borrower and accepted and agreed to by the Borrower. (b) The Borrower also agrees to pay to the Placement Agent all reasonable out-of-pocket costs and expenses of the Placement Agent to the extent incurred in connection with: (i) each issuance and placement of the Notes from time to time; (ii) the preparation, execution and delivery of this Placement Agreement, the Placement Memorandum, the Note Agreement, the Notes, any Related Document and any other documents contemplated to be delivered in connection herewith or therewith; (iii) any amendment or modification of, or any default or waiver (whether or not executed) under, this Placement Agreement, the Placement Memorandum, the Note Agreement, the Notes, any Related Document and any other documents contemplated to be delivered in connection herewith or therewith; and (iv) the enforcement of any rights hereunder or thereunder or the defense of any claim arising out of or in any way related to or connected with this Placement Agreement, the Placement Memorandum, the Note Agreement, the Notes, any Related Document and any other documents contemplated to be delivered in connection herewith or therewith. (c) The Borrower shall also pay all other fees and expenses incurred in connection with: (i) each issuance and placement of the Notes; (ii) the preparation, execution and delivery of this Placement Agreement, the Placement Memorandum, the Note Agreement, the Notes, any Related Document and any other document that may be delivered in connection herewith or therewith; (iii) any amendment or modification of, or any default or waiver (whether or not executed) under, this Placement Agreement, the Placement Memorandum, the Note Agreement, the Notes, any Related Document and any other documents contemplated to be delivered in connection herewith or therewith; and (iv) the enforcement of any rights hereunder or thereunder or the defense of any claim arising out of or in any way related to or connected with this Placement Agreement, the Placement Memorandum, the Note Agreement, the Notes, any Related Document and any other documents contemplate to be delivered in connection herewith or therewith; including, but not limited to, the fees and expenses of counsel for the Placement Agent, counsel for the Bank, counsel for the Borrower and counsel -5- 6 for the Trustee, the fees and expenses of the Trustee, the cost of printing and delivery of the Notes and the Placement Memorandum, Rating Agency fees, if any, and fees and expenses of the Bank. (d) The fees and expenses described in paragraphs (b) and (c) above shall be paid by the Borrower whether or not the Notes are issued or placed. All fees and expenses described in this Section 6, to the extent they are identifiable and billed, shall be paid on the initial Date of Issuance, and the remainder shall be paid promptly upon receipt of statements therefor. The obligations of the Borrower under this Section 6 shall survive the issuance and maturity of the Notes and any termination of this Placement Agreement. SECTION 7. RESIGNATION OR REMOVAL OF PLACEMENT AGENT. (a) The Placement Agent may resign and be discharged of its duties and obligations hereunder and under the applicable Note Agreement and may be removed from all or a portion of its duties and obligations hereunder and under the applicable Note Agreement in the manner and at the times specified in Section 8.12 of the applicable Note Agreement. Upon the resignation or removal of the Placement Agent, the Borrower agrees to appoint a successor Placement Agent in accordance with Section 8.12 of the applicable Note Agreement. (b) Notwithstanding the foregoing, with the consent of the Borrower and with prior written notice to (but without the consent of) the Trustee, the Remarketing Agent, the Paying Agent, the Bank and the Noteholders, NationsBank of North Carolina, N.A. may assign or transfer any or all of its rights and obligations as Placement Agent hereunder and under the Note Agreement to any other wholly-owned subsidiary of NationsBank Corporation so long as such subsidiary meets the qualifications for a Placement Agent set forth in the Note Agreement and is otherwise permitted to perform such obligations under all applicable federal and state banking and securities laws, rules and regulations. SECTION 8. DISCLOSURE COVENANTS. The Borrower hereby approves of the use and distribution of the Placement Memorandum (including any amendments, modifications and supplements thereto) and all exhibits and appendices thereto and all other documents provided by the Borrower to the Placement Agent for use in the placement of the Notes from time to time. The Borrower agrees to cause the Placement Agent to be furnished with as many copies of the Placement Memorandum and all exhibits and appendices thereto and documents incorporated by reference therein as the Placement Agent may reasonably request and the Borrower agrees to furnish the Placement Agent with such other information as the Borrower deems necessary or as the Placement Agent may reasonably request from time to time in connection with the placement of the Notes in accordance with the terms hereof. If at any time during the term of this Placement Agreement any event or condition known to the Borrower relating to or affecting the Borrower, the Bank, the Project or the Notes or any document or agreement related to the Notes or executed in connection with the issuance or -6- 7 placement thereof shall occur which might affect the accuracy or completeness of any statement of a material fact contained in the Placement Memorandum or any exhibit or appendix thereto or document incorporated by reference therein or any other materials or information furnished by the Borrower to the Placement Agent in connection with the placement, remarketing or sale of any Note hereunder, the Borrower shall promptly notify the Placement Agent in writing of the circumstances and details of such event or condition. SECTION 9. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless the Placement Agent and any member, commissioner, officer, director, employee or agent of the Placement Agent and each person, if any, who controls the Placement Agent within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively, the "Indemnified Parties") against any and all losses, claims, damages, liabilities or expenses whatsoever (collectively, "Loss") which any of them may incur or suffer, without negligence, willful misconduct or bad faith on their part, arising out of, in connection with or relating to the placement of the Notes from time to time, including, without limitation, any Loss caused by, or which arises out of or relates to, any breach (or alleged breach) by the Borrower of its representations or warranties set forth herein, or any untrue statement or misleading statement of a material fact contained in the Placement Memorandum or incorporated therein by reference (except statements pertaining to the Bank, the Remarketing Agent or the Placement Agent) or supplied by the Borrower in writing in connection with the placement of Notes from time to time in accordance with the terms hereof and of the Remarketing Agreement (collectively, the "Disclosure Materials"), or which arises out of or relates to, any omission or alleged omission from such Disclosure Materials of any material fact required to be stated therein or necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading (except omissions or alleged omissions pertaining to the Bank, the Remarketing Agent or the Placement Agent). This indemnity agreement is in addition to any other liability that the Borrower may otherwise have. In case any action (including any governmental investigation) shall be brought against one or more of the Indemnified Parties and in respect of which indemnity may be sought as provided herein, such Indemnified Party or Indemnified Parties shall promptly notify the Borrower in writing and the Borrower shall promptly assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party or Indemnified Parties, payment of all expenses and the right to negotiate and consent to settlement; but the omission to notify the Borrower as provided herein shall not relieve the Borrower from any liability that it may have (i) under this Section 9, so long as the Borrower is given the reasonable opportunity to defend such claim, and (ii) otherwise than under this Section 9. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Indemnified Parties. The Borrower shall not be liable for any settlement of any such action effected without its consent, -7- 8 but if settled with such consent or if there is a final judgment in any such action with or without consent, the Borrower agrees to indemnify and hold harmless the Indemnified Party or Indemnified Parties from and against any Loss by reason of such settlement or judgment. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 9 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Borrower or unenforceable against the Borrower on grounds of policy or otherwise, the Borrower and the Placement Agent shall contribute severally to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) to which the Borrower and the Placement Agent may be subject in such proportion so that the Placement Agent is responsible for that portion represented by the percentage that the fee referred to in Section 6(a) hereof bears to the initial placement price for the Notes set forth in the Placement Memorandum and the Borrower is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act of 1933, as amended, shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Any party entitled to contribution shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party under this paragraph, notify such party from whom contribution may be sought, but the omission so to notify such party shall not relieve the party from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise. The liabilities under this paragraph are in addition to any other liabilities that the parties may have. The obligations under this Section 9 shall survive the issuance and the maturity of the Notes and any termination of this Placement Agreement. SECTION 10. NOTICES. Unless otherwise provided herein, all notices, certificates, requests or other communications hereunder shall be sufficiently given when delivered in writing by hand or sent by facsimile transmission, tested telex or registered or certified mail, return receipt requested, postage prepaid, or sent by any other electronic method capable of creating a written document, addressed as follows: If to the Trustee or the Paying Agent: Norwest Bank Minnesota, N.A. Norwest Center Sixth and Marquette Minneapolis, Minnesota 55479-0069 Attention: Polly B. Berquist Facsimile Transmission Number: (612) 667-9825 -8- 9 If to the Borrower: Hanover Direct, Inc. 1500 Harbor Boulevard, 1st Floor Weehawken, New Jersey 07087 Attention: Diana Faillace Facsimile Transmission Number: (201) 392-5004 If to the Remarketing Agent: NationsBank of North Carolina, N.A. NationsBank Corporate Center NC1-007-06-07 Charlotte, North Carolina 28255 Attention: Money Market Sales Department Facsimile Transmission Number: (704) 386-6490 If to the Placement Agent: NationsBank of North Carolina, N.A. NationsBank Corporate Center, 6th Floor NC1-007-06-01 Charlotte, North Carolina 28255 Attention: VRDN Project Manager Facsimile Transmission Number: (704) 388-9366 If to the Bank: NationsBank of North Carolina, N.A. 767 5th Avenue, 5th Floor New York, New York 10153 Attention: Christopher C. Browder Facsimile Transmission Number: (212) 751-6909 Each of the above parties may, by written notice given hereunder to the others, designate any further or different addresses to which or means by which, subsequent notices, certificates, requests or other communications shall be sent. SECTION 11. GOVERNING LAW. THIS PLACEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. -9- 10 SECTION 12. COUNTERPARTS. This Placement Agreement may be executed in several counterparts, each of which shall be an original and all of which, taken together, shall constitute but one and the same instrument. SECTION 13. BINDING EFFECT. This Placement Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that the Borrower may not assign any of its rights or obligations hereunder without the consent of the Placement Agent. SECTION 14. TERMINATION. This Placement Agreement shall terminate (except as to rights to any fees payable and rights to indemnity or contribution, which shall survive any termination) on the earlier of (i) the removal or resignation of the Placement Agent pursuant to Section 7 hereof or (ii) payment in full of the Notes. SECTION 15. MISCELLANEOUS. (a) Nothing herein shall be construed to make any party hereto an employee of the other or to establish any fiduciary relationship between the Borrower and the Placement Agent, except as expressly provided herein. (b) This Placement Agreement may be amended from time to time only by an instrument in writing executed by all the parties hereto. (c) The headings contained herein are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. (d) If any one or more of the covenants, provisions or agreements contained in this Placement Agreement shall be determined by a court of competent jurisdiction to be invalid, the invalidity of such covenants, provisions and agreements shall in no way affect the validity or effectiveness of the remainder of this Placement Agreement, and this Placement Agreement shall continue in full force and effect to the fullest extent permitted by law. -10- 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ______________________________________ Title: Senior Vice President & Treasurer _____________________________________ NATIONSBANK OF NORTH CAROLINA, N.A. By: /s/ Jennifer W. Arens ______________________________________ Jennifer W. Arens Vice President -11- EX-10.44 17 REMARKETING AND INTEREST SERVICES AGREEMENT 1 Exhibit 10.44 REMARKETING AND INTEREST SERVICES AGREEMENT This REMARKETING AND INTEREST SERVICES AGREEMENT, dated as of November 9, 1994, by and between HANOVER DIRECT, INC., a corporation organized and existing under the laws of the State of Delaware (the "Borrower"), and NATIONSBANK OF NORTH CAROLINA, N.A., a national banking association (the "Remarketing Agent"); W I T N E S S E T H: WHEREAS, the Borrower intends to issue and sell from time to time its interest bearing flexible term notes in an aggregate principal amount not to exceed Twenty Million Dollars ($20,000,000) (the "Facility Amount") in two separate series (the first series of such notes being hereinafter referred to as the "Series A Notes," the second series of such notes being hereinafter referred to as the "Series B Notes" and the Series A Notes and the Series B Notes being hereinafter collectively referred to as the "Notes") each series in an aggregate principal amount not to exceed Ten Million Dollars ($10,000,000), pursuant to the provisions of a Series A Note Agreement dated as of November 9, 1994 (the "Series A Note Agreement") by and between the Borrower and Norwest Bank Minnesota, N.A. (the "Trustee" or the "Paying Agent", as applicable), and the Series B Note Agreement to be entered into among the Borrower, the Trustee and the Paying Agent (the "Series B Note Agreement"; the Series A Note Agreement and the Series B Note Agreement being hereinafter collectively referred to as the "Note Agreement") between the Borrower and the Trustee, and to use the proceeds from such issuance and sale to refinance and/or finance certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower, located in San Francisco, California (the "Project"); and WHEREAS, the payment when due of the principal of, interest on and Purchase Price (as defined in the Note Agreement) of the Series A Notes will be supported, to the extent provided therein, by the Series A Letter of Credit and the payment when due of the principal of, interest on and Purchase Price of the Series B Notes will be supported, to the extent provided therein, by the Series B Letter of Credit (the Series A Letter of Credit and the Series B Letter of Credit are sometimes hereinafter collectively referred to as the "Letter of Credit"), each issued in favor of the Trustee by NationsBank of North Carolina, N.A. (the "Bank") and each in an amount of not less than $10,145,833, representing the principal amount of the applicable series of Notes plus 35 days interest on such amount computed at the Maximum Rate (as defined in the Note Agreement) on the basis of actual number of days elapsed in a year of 360 days, all pursuant to a Credit Facilities and Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement Agreement") by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as Agent; and 2 WHEREAS, the Notes are subject to mandatory tender for purchase by the holders thereof and to remarketing, all as provided in the Note Agreement; and WHEREAS, the Series A Notes are more fully described in the Preliminary Private Placement Memorandum dated October 25, 1994 and the Private Placement Memorandum dated November 9, 1994 (collectively, the "Series A Placement Memorandum") prepared in connection with the initial placement of the Notes; and WHEREAS, the Series B Notes will be more fully described in a Preliminary Private Placement Memorandum to be dated approximately seven days prior to the issuance of the Series B Notes and a Private Placement Memorandum to be dated the date of issuance of the Series B Notes (collectively, the "Series B Placement Memorandum") prepared in connection with the initial placement of the Series B Notes (the Series A Placement Memorandum and the Series B Placement Memorandum are hereinafter sometimes collectively referred to as the "Placement Memorandum"); and WHEREAS, the Borrower has requested that the Remarketing Agent act as its agent hereunder to perform certain services in connection with the remarketing of Notes tendered for purchase and the determination of the interest rates and interest periods with respect to the Notes, and the Remarketing Agent is willing to accept such appointment and perform such services on the terms and subject to the conditions set forth herein and in the Note Agreement; NOW, THEREFORE, for and in consideration of the covenants herein made, and upon the terms and subject to the conditions herein set forth, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used herein and not otherwise herein defined shall have the meanings ascribed to them in the applicable Note Agreement. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants to the Remarketing Agent that each of the Borrower's representations and warranties contained in the Placement Agreement, the Note Agreement and the Reimbursement Agreement is true and correct, in all material respects, as of the date hereof and is hereby made to the Remarketing Agent as if set forth herein, and the Borrower is in compliance, in all material respects, with all terms, covenants and conditions of the Placement Agreement and each other agreement or document relating to the Notes to which it is a party. SECTION 3. REMARKETING OF NOTES. The Remarketing Agent hereby agrees to perform the duties and obligations, and only such duties and obligations, as are expressly imposed upon it as Remarketing Agent herein and under the Note Agreement and, except as otherwise provided in and subject to the limitations set forth in the Note Agreement, agrees to use its reasonable best efforts to remarket the Notes as set forth in the Note Agreement, as agent for the Borrower and not as principal, to "accredited investors" within the meaning of Rule 501(a) of Regulation D of the Securities and Exchange Commission. -2- 3 SECTION 4. DETERMINATION OF INTEREST PERIODS AND INTEREST RATES. The Remarketing Agent shall determine the Interest Period and the Interest Rate with respect to each Note in accordance with Section 2.02(a) of the applicable Note Agreement and shall provide notice thereof to the parties, in the manner and at the times set forth in Section 2.02(b) of the applicable Note Agreement. SECTION 5. REMARKETING AGENT COMPENSATION. The Borrower agrees to pay to the Remarketing Agent a continuing remarketing and administration fee as set forth in that certain Engagement Letter dated July 15, 1994 from the Remarketing Agent to the Borrower and accepted and agreed to by the Borrower, and such fee shall be payable in advance on the initial Date of Issuance and on each October 1 thereafter until payment in full of the Notes. The Borrower also agrees to reimburse the Remarketing Agent for all reasonable out-of-pocket expenses incurred by it in connection herewith, including, but not limited to, fees and disbursements of counsel to the Remarketing Agent. SECTION 6. DUTIES OF REMARKETING AGENT. The Remarketing Agent shall have no duty to act hereunder to the extent the Remarketing Agent is not required to perform its obligations under the Note Agreement. To the extent permitted under the applicable Note Agreement, or otherwise with the consent of the Borrower, the Remarketing Agent may execute and perform any of its duties hereunder or under the Note Agreement through agents, attorneys, employees or co-remarketing agents and shall not be responsible for the misconduct or negligence of any agent, attorney, employee or co-remarketing agent appointed with due care. Notwithstanding any provision to the contrary herein, the Remarketing Agent hereby expressly assumes the duties and obligations of the Remarketing Agent under the Note Agreement, but only as specifically set forth therein. SECTION 7. RESIGNATION OR REMOVAL OF REMARKETING AGENT. (a) The Remarketing Agent may resign and be discharged of its duties and obligations hereunder and under the applicable Note Agreement and may be removed from all or a portion of its duties and obligations hereunder and under the applicable Note Agreement in the manner and at the times specified in Section 8.10 of the applicable Note Agreement. Upon the resignation or removal of the Remarketing Agent, the Borrower agrees to appoint a successor Remarketing Agent in accordance with Section 8.10 of the applicable Note Agreement. (b) Notwithstanding the foregoing, with the consent of the Borrower and with prior written notice to (but without the consent of) the Trustee, the Placement Agent, the Paying Agent, the Bank and the Noteholders, NationsBank of North Carolina, N.A. may assign or transfer any or all of its rights and obligations as Remarketing Agent hereunder and under the Note Agreement to any other direct or indirect wholly-owned subsidiary of NationsBank Corporation so long as such subsidiary meets the qualifications for a -3- 4 Remarketing Agent set forth in the Note Agreement and is otherwise permitted to perform such obligations under all applicable federal and state banking and securities laws, rules and regulations. SECTION 8. DISCLOSURE COVENANTS. The Borrower hereby approves of the use and distribution of the Placement Memorandum (including any amendments, modifications and supplements thereto made or approved by the Borrower) and all exhibits and appendices thereto and all other documents provided by the Borrower to the Remarketing Agent for use in the remarketing of the Notes. The Borrower agrees to cause the Remarketing Agent to be furnished with as many copies of the Placement Memorandum and all exhibits and appendices thereto and documents incorporated by reference therein as the Remarketing Agent may reasonably request and the Borrower agrees to furnish the Remarketing Agent with such other information as the Borrower deems necessary or as the Remarketing Agent may reasonably request from time to time in connection with the remarketing of the Notes in accordance with the terms hereof. If at any time during the term of this Remarketing Agreement any event or condition known to the Borrower relating to or affecting the Borrower, the Bank, the Project or the Notes or any document or agreement related to the Notes or executed in connection with the issuance or placement thereof shall occur which might affect the accuracy or completeness of any statement of a material fact contained in the Placement Memorandum or any exhibit or appendix thereto or document incorporated by reference therein or any other materials or information furnished by the Borrower to the Remarketing Agent in connection with the placement, remarketing or sale of any Note hereunder, the Borrower shall promptly notify the Remarketing Agent in writing of the circumstances and details of such event or condition. SECTION 9. INDEMNIFICATION. The Remarketing Agent, and any member, director, officer, official, employee or agent of the Remarketing Agent, and each person, if any, who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively, the "Indemnified Parties") shall be entitled to all rights and benefits provided to the Placement Agent under Section 9 of the Placement Agreement, subject to any conditions and qualifications thereunder. The Borrower agrees to indemnify any Indemnified Party for, and to hold it harmless against, any losses, liabilities, claims (whether or not valid or meritorious), damages, and reasonable costs and expenses (including, without limitation, reasonable counsel fees and disbursements) incurred by such Indemnified Party arising out of or in connection with the Indemnified Party's performance of its obligations pursuant to this Agreement, except to the extent caused by the Indemnified Party's negligence or willful misconduct. SECTION 10. FAILURES BY PURCHASERS. The Remarketing Agent shall not be liable to the Borrower on account of the failure of any person to whom the Remarketing Agent has remarketed a Note to pay for such Note or deliver any document in respect of such placement. -4- 5 SECTION 11. NOTICES. Unless otherwise provided herein, all notices, certificates, requests or other communications hereunder shall be sufficiently given when delivered in writing by hand or sent by facsimile transmission, tested telex or registered or certified mail, return receipt requested, postage prepaid, or sent by any other electronic method capable of creating a written document, addressed as follows: If to the Trustee or Paying Agent: Norwest Bank Minnesota, N.A. Norwest Center Sixth and Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Department Facsimile Transmission Number: (612) 667-9835 If to the Borrower: Hanover Direct, Inc. 1500 Harbor Boulevard, 1st Floor Weehawken, New Jersey 07087 Attention: General Counsel Facsimile Transmission Number: (201)-392-5004 If to the Remarketing Agent: NationsBank of North Carolina, N.A. NationsBank Corporate Center NC1-007-06-07 Charlotte, North Carolina 28255-0001 Attention: Money Market Sales Department Facsimile Transmission Number: (704) 386-6490 If to the Placement Agent: NationsBank of North Carolina, N.A. NationsBank Corporate Center, 6th Floor NC1-007-06-01 Charlotte, North Carolina 28255 Attention: VRDN Product Manager Facsimile Transmission Number: (704) 388-9366 -5- 6 If to the Bank: NationsBank of North Carolina, N.A. 767 5th Avenue, 5th Floor New York, New York 10153 Attention: Christopher L. Browder Facsimile Transmission Number: (212) 751-6909 Upon the reasonable request of the Borrower (and at the Borrower's expense), (a) the Trustee and the Paying Agent will provide to the Borrower a list of names and addresses of and principal amounts held by the registered owners or Beneficial Owners of the Notes for purposes of enabling the Borrower to obtain any consents or amendments or waivers hereunder or under the Note Agreement and (b) the Remarketing Agent will cooperate in good faith with the Borrower in connection with any solicitation by the Borrower of Beneficial Owners of the Notes relating to any consents or amendments or waivers hereunder or under the Note Agreement; provided, however, that the Borrower covenants that it will use any information obtained from the Trustee, the Paying Agent or the Remarketing Agent regarding the Beneficial Owners of the Notes only for the purpose of obtaining consents, amendments or waivers hereunder or under the Note Agreement; as required hereunder or in the Note Agreement; provided further, that the Borrower will not disclose the identity of any of the Beneficial Owners of the Notes to any other Person except with the prior written consent of the Remarketing Agent in each and every instance. Each of the above parties may, by written notice given hereunder to the others, designate any further or different addresses to which or means by which, subsequent notices, certificates, requests or other communications shall be sent. SECTION 12. GOVERNING LAW. THIS REMARKETING AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. SECTION 13. COUNTERPARTS. This Remarketing Agreement may be executed in several counterparts, each of which shall be an original and all of which, taken together, shall constitute but one and the same instrument. SECTION 14. BINDING EFFECT. This Remarketing Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that the Borrower may not assign any of its rights or obligations hereunder without the consent of the Remarketing Agent. SECTION 15. TERMINATION. This Remarketing Agreement shall terminate (except as to unsatisfied obligations of either party arising prior to the Termination Date (as hereinafter defined) and rights to any fees payable and rights to indemnity or contribution, which shall survive any termination) on the earlier of either of the following dates (the "Termination -6- 7 Date") (i) the date of the removal or resignation of the Remarketing Agent pursuant to Section 7 hereof or (ii) the date of the payment in full of the Notes. SECTION 16. MISCELLANEOUS. (a) Nothing herein shall be construed to make any party hereto an employee of the other or to establish any fiduciary relationship between the Borrower and the Remarketing Agent, except as expressly provided herein. (b) This Remarketing Agreement may be amended from time to time only by an instrument in writing executed by all the parties hereto. (c) The headings contained herein are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Remarketing Agreement. (d) If any one or more of the covenants, provisions or agreements contained in this Remarketing Agreement shall be determined by a court of competent jurisdiction to be invalid, the invalidity of such covenants, provisions and agreements shall in no way affect the validity or effectiveness of the remainder of this Remarketing Agreement, and this Remarketing Agreement shall continue in full force and effect to the fullest extent permitted by law. -7- 8 IN WITNESS WHEREOF, the parties hereto have caused this Remarketing Agreement to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ______________________________________ Title: Senior VP & Treasurer _____________________________________ NATIONSBANK OF NORTH CAROLINA, N.A. By: /s/ Jennifer W. Arens _______________________________________ Jennifer W. Arens Vice President -8- EX-10.45 18 FIRST SUPPLEMENTAL SERIES A NOTE AGREEMENT 1 Exhibit 10.45 FIRST SUPPLEMENTAL SERIES A NOTE AGREEMENT This FIRST SUPPLEMENTAL SERIES A NOTE AGREEMENT dated as of December 29, 1995, between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and NORWEST BANK MINNESOTA, N.A., a national banking association organized under the laws of the United States of America and having its principal office in Minneapolis, Minnesota, as trustee and paying agent (the "Trustee" or the "Paying Agent", as applicable); W I T N E S S E T H: WHEREAS, the Borrower and the Trustee entered into the Series A Note Agreement dated as of November 9, 1994 (the "Series A Note Agreement") pursuant to which the Borrower issued and sold its interest bearing Flexible Term Notes, Series A (the "Series A Notes") in the aggregate principal amount of $10,000,000; and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series A Letter of Credit in substitution for the Series A Letter of Credit (each as defined in the Series A Note Agreement); and WHEREAS, in order to more fully evidence the delivery of the Substitute Series A of Letter of Credit referenced above, the Borrower and the Trustee desire to amend the Series A Note Agreement, subject to the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used in this First Supplemental Series A Note Agreement and not otherwise herein defined shall have the meaning ascribed to them in the Series A Note Agreement. SECTION 2. AMENDMENT TO SECOND RECITAL OF THE SERIES A NOTE AGREEMENT. The second recital of the Series A Note Agreement on page 1 thereof is hereby amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "L/C Issuer". SECTION 3. AMENDMENTS TO SECTION 1.01 OF THE SERIES A NOTE AGREEMENT. (a) The definition of "BANK" set forth in Section 1.01 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (b) The definition of "BANK NOTES" set forth in Section 1.01 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: 2 "BANK NOTES" means any Series A Notes purchased from proceeds from a draw under the Series A Letter of Credit and pledged to the Lender under the Reimbursement Agreement, to the extent provided therein, including, in the event a book-entry system with respect to the Series A Notes is in effect, any beneficial ownership interest therein; provided that in the event that the L/C Issuer fails to honor a drawing under the Series A Letter of Credit to fund such a purchase and the Borrower purchases such Series A Notes with its own funds, "Bank Notes" shall include such Series A Notes, except that such Series A Notes shall not be pledged to the Lender under the Reimbursement Agreement. (c) The definition of "BUSINESS DAY" set forth in Section 1.01 of the Series A Note Agreement is amended by deleting the last sentence thereof in its entirety and replacing it with the following: For purposes of this definition, "paying office of the Bank" means the office of the L/C Issuer responsible for making payments under any Series A Letter of Credit. (d) The definition of "OPINION OF COUNSEL" set forth in Section 1.01 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: "OPINION OF COUNSEL" means a written opinion of counsel who is reasonably acceptable to the Trustee, the Placement Agent and Remarketing Agent. The counsel may be an employee of or counsel to the Borrower, the Placement Agent, the Remarketing Agent, the L/C Issuer or the Trustee. (e) The definition of "REIMBURSEMENT AGREEMENT" set forth in Section 1.01 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: "REIMBURSEMENT AGREEMENT" means, individually and collectively, (a) the Application for Irrevocable Standby Letter of Credit dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties and the Lender requesting the issuance by the L/C Issuer of the Series A Letter of Credit (the "Application"), (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender, acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the Application pursuant to which the Series A Letter of Credit is issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series A Letter of Credit or lender providing credit support to such issuer. 2 3 (f) The definition of "SERIES A LETTER OF CREDIT" set forth in Section 1.01 of the Series A Note Agreement is amended by (a) deleting the words "State of North Carolina" in the third line thereof and replacing them with "Commonwealth of Pennsylvania" and (b) by deleting the word "Bank" in the fourteenth line thereof and replacing it with "L/C Issuer". (g) Section 1.01 of the Series A Note Agreement is hereby amended by adding the following new definitions thereto: "ACCOUNT PARTIES" means Hanover Direct Pennsylvania, Inc., Hanover Direct Virginia Inc. and Gump's Corp., and their successors and assigns. "L/C ISSUER" means the issuer of the Series A Letter of Credit, initially CoreStates Bank, N.A., and upon the issuance and delivery of a Substitute Series A Letter of Credit, shall mean the issuer of such Substitute Series A Letter of Credit. "LENDER" means Congress Financial Corporation, its successors and assigns, or other lender that refinances the obligations to Lender under the Reimbursement Agreement and replaces all credit support given by Lender to the L/C Issuer in respect of the Series A Letter of Credit or any Substitute Series A Letter of Credit. SECTION 4. AMENDMENT TO SECTION 1.02 OF THE SERIES A NOTE AGREEMENT. Subsection (g) of Section 1.02 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: (g) All references herein to time shall be Eastern Time unless otherwise expressly stated. SECTION 5. AMENDMENT TO SECTION 2.07 OF THE SERIES A NOTE AGREEMENT. Subsection (b) of Section 2.07 of the Series A Note Agreement is amended by deleting the third sentence thereof in its entirety and replacing it with the following: The Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series A Notes, (ii) notices and (iii) voting. SECTION 6. AMENDMENT TO SECTION 2.08 OF THE SERIES A NOTE AGREEMENT. Subsection (a) of Section 2.08 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the sixth line thereof and replacing it with a reference to the "Lender". SECTION 7. AMENDMENT TO SECTION 3.01 OF THE SERIES A NOTE AGREEMENT. Subsection (a)(ii) of Section 3.01 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the second line thereof and replacing it with a reference to the "Lender". 3 4 SECTION 8. AMENDMENT TO SECTION 3.04 OF THE SERIES A NOTE AGREEMENT. Section 3.04 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender". SECTION 9. AMENDMENT TO SECTION 3.08 OF THE SERIES A NOTE AGREEMENT. Subsection (d)(ii) of Section 3.08 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: (ii) All Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series A Letter of Credit) will be registered in the name of the Trustee, and, to the extent so provided under the Reimbursement Agreement, held by the Trustee as agent and bailee of the Lender and subject to the pledge by the Borrower to the Lender and shall be held by the Trustee pursuant to this Agreement and the Reimbursement Agreement. Upon receipt of Remarketing Proceeds in respect of Bank Notes, the Remarketing Agent shall notify the Lender, the Trustee and the Borrower of such receipt, and the Remarketing Agent shall execute and deliver to the L/C Issuer, a certificate in the form of Exhibit C attached hereto requesting reinstatement of the Series A Letter of Credit as provided therein. Thereafter, upon the Trustee's receipt of notice from the L/C Issuer, as provided in the Series A Letter of Credit, that the Available Amount of the Series A Letter of Credit has been automatically reinstated as provided therein, the Trustee shall so notify the Remarketing Agent and the Lender, whereupon the Remarketing Agent will remit such Remarketing Proceeds as directed by the Lender. The Trustee shall not release the Bank Notes until it receives from the L/C Issuer the notice referred to in the preceding sentence. The Remarketing Agent shall hold such Remarketing Proceeds in a segregated account of the Remarketing Agent for the benefit of the Borrower, subject to the security interest of the Lender therein pursuant to the Reimbursement Agreement, except that if the Series A Letter of Credit is not reinstated by an amount equal to the Remarketing Proceeds, then the Remarketing Agent shall hold such funds for the benefit of the purchasers which provided such Remarketing Proceeds. 4 5 SECTION 10. AMENDMENTS TO SECTION 4.03 OF THE SERIES A NOTE AGREEMENT. (a) Subsection (c) of Section 4.03 of the Series A Note Agreement is amended by deleting all references to the "Bank" therein and replacing them with references to the "Lender". (b) Subsection (e) of Section 4.03 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the last line thereof and replacing it with a reference to the "L/C Issuer". SECTION 11. AMENDMENT TO SECTION 5.02 OF THE SERIES A NOTE AGREEMENT. Subsection (c) of Section 5.02 of the Series A Note Agreement is amended by deleting all references therein to the "Bank" and replacing them with references to the "L/C Issuer". SECTION 12. AMENDMENT TO SECTION 5.03 OF THE SERIES A NOTE AGREEMENT. Subsection (b) of Section 5.03 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the last line thereof and replacing it with a reference to the "L/C Issuer". SECTION 13. AMENDMENT TO SECTION 5.04 OF THE SERIES A NOTE AGREEMENT. Section 5.04 of the Series A Note Agreement is amended by deleting the second and third paragraphs thereof in their entirety and replacing them with the following: When the Series A Letter of Credit terminates or expires in accordance with its terms or a Substitute Series A Letter of Credit therefor is accepted hereunder, the Trustee shall immediately surrender the Series A Letter of Credit to the L/C Issuer. The Trustee hereby agrees that, except in the case of a redemption in part pursuant to Article III hereof or any other reduction in the principal amount of Series A Notes Outstanding, it will not under any circumstances request that the L/C Issuer reduce the amount of the Series A Letter of Credit. If at any time, all Series A Notes shall cease to be Outstanding, the Trustee shall execute and deliver to the L/C Issuer the certificate in the form of Annex E to the Series A Letter of Credit and shall surrender the Series A Letter of Credit to the L/C Issuer for cancellation. If at any time, the L/C Issuer shall fail to honor a draft presented under the Series A Letter of Credit, in conformity with the terms thereof, the Trustee shall give immediate telephonic notice thereof to the Remarketing Agent, the Lender and the Borrower. SECTION 14. AMENDMENT TO SECTION 7.01 OF THE SERIES A NOTE AGREEMENT. Subsection (d) of Section 7.01 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: (d) Receipt by the Trustee of written notice from the Lender that an Event of Default has occurred under the Reimbursement Agreement. SECTION 15. AMENDMENTS TO SECTION 7.02 OF THE SERIES A NOTE AGREEMENT. 5 6 (a) Subsection (a) of Section 7.02 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the second line thereof and replacing it with a reference to the "Lender". (b) Subsection (b) of Section 7.02 of the Series A Note Agreement is hereby deleted in its entirety and replaced with the following: (b) Upon the occurrence of any Event of Default specified in Section 7.01(c), the Trustee shall notify the Lender of such Event of Default and shall, by notice to the Borrower, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent declare the entire unpaid principal of and interest on the Series A Notes immediately due and payable, and, thereupon, the entire unpaid principal of and interest on the Series A Notes shall forthwith become due and payable. SECTION 16. AMENDMENT TO SECTION 7.03 OF THE SERIES A NOTE AGREEMENT. Section 7.03 of the Series A Note Agreement is amended (a) by deleting the reference to the "Bank" in the first sentence thereof and replacing it with a reference to the "Lender" and (b) by deleting the second sentence thereof in its entirety and replacing it with the following: If such instructions are received by the Trustee, such draw proceeds and, if necessary, the moneys on deposit in the Interest Reserve Account, shall be immediately applied to the purchase of the Series A Notes, the acceleration of the Series A Notes shall be cancelled, the Series A Notes shall become Bank Notes and the Series A Notes shall be registered in the name of the Trustee, and, to the extent so provided under the Reimbursement Agreement, held by the Trustee as agent and bailee of the Lender, and pledged under the Reimbursement Agreement as additional security for repayment of the Borrower's obligations under the Reimbursement Agreement. SECTION 17. AMENDMENT TO SECTION 7.05 OF THE SERIES A NOTE AGREEMENT. Section 7.05 of the Series A Note Agreement is amended by adding the phrase "and the Account Parties" between the words "Borrower" and "to" in the seventh line thereof. SECTION 18. AMENDMENT TO SECTION 7.06 OF THE SERIES A NOTE AGREEMENT. Section 7.06 of the Series A Note Agreement is amended (a) by deleting the references to the "Bank" in the second and fourth lines thereof and replacing them with references to the "Lender" and (b) by deleting the reference to the "Bank" in the second line of subsection (b) thereof and replacing it with a reference to the "L/C Issuer". 6 7 SECTION 19. AMENDMENT TO SECTION 7.09 OF THE SERIES A NOTE AGREEMENT. Section 7.03 of the Series A Note Agreement is deleted in its entirety and replaced with the following: SECTION 7.09 [RESERVED]. SECTION 20. AMENDMENT TO SECTION 8.05 OF THE SERIES A NOTE AGREEMENT. Section 8.05 of the Series A Notes Agreement is amended by deleting the references to the "Bank" in the sixth and tenth lines thereof and replacing them with references to the "Lender". SECTION 21. AMENDMENT TO SECTION 8.08 OF THE SERIES A NOTE AGREEMENT. Section 8.08 of the Series A Note Agreement is amended (a) by deleting all references therein to the "Bank" or "Banks" and replacing them with references to the "Lender" or "Lender's", as applicable, and (b) by adding the following sentence after the last paragraph thereof: No resignation or removal of the Trustee shall be binding upon the L/C Issuer for purposes of the Series A Letter of Credit, and no successor Trustee shall have any rights to draw, except upon compliance with the transfer provisions therein set forth. SECTION 22. AMENDMENT TO SECTION 8.10 OF THE SERIES A NOTE AGREEMENT. Section 8.10 of the Series A Note Agreement is amended (a) by deleting all references therein to the "Bank" and replacing them with references to the "Lender" and (b) by adding the following sentence after the last paragraph thereof: No such resignation or removal of the Remarketing Agent or appointment of or assignment to a successor Remarketing Agent shall be binding upon the L/C Issuer for purposes of the Series A Letter of Credit, unless set forth in an amendment to the Series A Letter of Credit issued by the L/C Issuer. SECTION 23. AMENDMENT TO SECTION 8.11 OF THE SERIES A NOTE AGREEMENT. Subsection (c) of Section 8.11 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the fourth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 24. AMENDMENT TO SECTION 8.12 OF THE SERIES A NOTE AGREEMENT. Section 8.12 of the Series A Note Agreement is amended by deleting all references to the "Bank" therein and replacing them with references to the "Lender". SECTION 25. AMENDMENT TO SECTION 8.13 OF THE SERIES A NOTE AGREEMENT. Section 8.13 of the Series A Note Agreement is amended by deleting all references to the "Bank" therein and replacing them with references to the "Lender". 7 8 SECTION 26. AMENDMENT TO SECTION 8.14 OF THE SERIES A NOTE AGREEMENT. Section 8.14 of the Series A Note Agreement is amended by deleting all references to the "Bank" or "Bank's" therein and replacing them with references to the "Lender" or "Lender's", as applicable. SECTION 27. AMENDMENT TO SECTION 8.16 OF THE SERIES A NOTE AGREEMENT. Section 8.16 of the Series A Note Agreement is amended (a) by adding the phrase ", to the extent provided in the Reimbursement Agreement," after the word "shall" at the end of the fourth line thereof and (b) by deleting the reference to the "Bank" in the fifth line thereof and replacing it with a reference to the "Lender". SECTION 28. AMENDMENT TO SECTION 9.01 OF THE SERIES A NOTE AGREEMENT. Subsection (f) of Section 9.01 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the fifth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 29. AMENDMENT TO SECTION 9.02 OF THE SERIES A NOTE AGREEMENT. Section 9.02 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the fourteenth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 30. AMENDMENT TO SECTION 9.06 OF THE SERIES A NOTE AGREEMENT. The heading and the first sentence of Section 9.06 of the Series A Note Agreement are hereby deleted in their entirety and replaced with the following: Section 9.06. LENDER AND REMARKETING AGENT CONSENT REQUIRED. Except to the extent that the consent of the Remarketing Agent or the Lender is not required for the action that is the subject of the amendment (e.g., removal of the Remarketing Agent, the Trustee or the Paying Agent by the Borrower upon the terms specified herein), an amendment to this Agreement or the Series A Notes shall not become effective unless the Remarketing Agent (but only to the extent that such amendment affects the rights, duties or obligations of the Remarketing Agent hereunder) and the Lender deliver to the Trustee their written consents to the amendment. SECTION 31. AMENDMENT TO SECTION 10.01 OF THE SERIES A NOTE AGREEMENT. Subsection (b) of Section 10.01 of the Series A Note Agreement is amended by deleting the reference to, and the address of, the "Bank" therein and replacing them with the following: If to the L/C Issuer: CoreStates Bank, N.A. 530 Walnut Street Philadelphia, Pennsylvania 19106 Attention: Ms. Cheryl Morton, Letter of Credit Department, 7th Floor Telephone No.: (215) 973-8157 Fax No.: (215) 973-6352 8 9 If to the Lender: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Mr. Mark Fagnani Telephone No.: (212) 840-2000 Fax No.: (212) 545-4283 SECTION 32. AMENDMENT TO SECTION 10.09 OF THE SERIES A NOTE AGREEMENT. Section 10.09 of the Series A Note Agreement is amended by deleting the reference to the "Bank" in the fourth line thereof and replacing it with a reference to the "Lender". SECTION 33. AMENDMENTS TO EXHIBIT A TO THE SERIES A NOTE AGREEMENT - FORM OF SERIES A NOTE. Exhibit A to the Series A Note Agreement (the "Form of Series A Note") is hereby amended as follows: (a) The second boldface paragraph on the first page of the Form of Series A Note (prior to the text thereof) is hereby deleted in its entirety and replaced with the following: PAYMENTS OF PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THIS SERIES A NOTE WILL BE MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT (HEREINAFTER DEFINED) IF REMARKETING PROCEEDS ARE NOT AVAILABLE OR IF AN EVENT OF DEFAULT HAS OCCURRED. ALTHOUGH THE SERIES A LETTER OF CREDIT IS A BINDING OBLIGATION OF CORESTATES BANK, N.A. (THE "L/C ISSUER"), THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF CORESTATES FINANCIAL CORP OR ANY OF ITS AFFILIATES, INCLUDING THE L/C ISSUER AND CONGRESS FINANCIAL CORPORATION, NOR IS THIS SERIES A NOTE A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS, INCLUDING NATIONSBANK, N.A., AND THIS SERIES A NOTE IS NOT GUARANTEED BY ANY OF THESE ENTITIES. THIS SERIES A NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO CERTAIN INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. 9 10 (b) The second paragraph of the text of the Form of Series A Note, beginning on page A-2 thereof, is amended by deleting the first two sentences thereof and replacing them with the following: This Series A Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A Notes"), issued pursuant to a Series A Note Agreement dated as of November 9, 1994, between the Borrower, and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, as amended by that certain First Supplemental Series A Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series A Note Agreement"), for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility owned and used by certain subsidiaries of the Borrower located in Roanoke, Virginia and a new retail store of Gump's Corp., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series A Note Agreement, the Borrower has arranged, through a credit facility established with Lender for certain of Borrower's subsidiaries, and as guarantor of such financing arrangements with Lender, for L/C Issuer to issue for the account of such subsidiaries its irrevocable Series A Letter of Credit dated December 29, 1995 (the "Series A Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series A Facility Amount and unpaid interest on or Purchase Price of the Series A Notes, but not to exceed $10,145,833, pursuant to (a) the Application for Irrevocable Standby Letter of Credit dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties (as defined in the Series A Note Agreement) and the Lender requesting the issuance by the L/C Issuer of the Series A Letter of Credit (the "Application"), (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender, acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the Application pursuant to which the Series A Letter of Credit is issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series A Letter of Credit or lender providing credit support to such issuer (individually and collectively, the "Reimbursement Agreement"). 10 11 (c) The seventh paragraph of the text of the Form of Series A Note, beginning on page A-4 thereof, is amended by deleting the third sentence thereof in its entirety and replacing it with the following: The Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series A Notes, (ii) notices and (iii) voting. (d) Section 1 of the Form of Series A Note, beginning on page A-5 thereof, is amended by adding the following definition: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (e) Subsection (f) of Section 3 of the Form of Series A Note, beginning on page A-9 thereof, is amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender." (f) Subsection (a) of Section 4 of the Form of Series A Note, beginning on page A-10 thereof, is amended by deleting the reference to the "Bank" in the fourth line of the last paragraph thereof and replacing it with a reference to the "Lender." (g) Section 7 of the Form of Series A Note, beginning on page A-13 thereof, is amended by deleting the second and third sentences of the first paragraph thereof in their entirety and replacing them with the following: The Series A Note Agreement directs the Trustee to declare an acceleration upon written notice by the Lender of the occurrence and continuance of an event of default under the Reimbursement Agreement and upon the occurrence of certain other Events of Default under the Series A Note Agreement. SECTION 34. ADDITION OF EXHIBIT C TO SERIES A NOTE AGREEMENT. The Series A Note Agreement is amended by adding Exhibit C thereto, a copy of which is attached hereto and incorporated herein and in the Series A Note Agreement by this reference. SECTION 35. EFFECT OF FIRST SUPPLEMENTAL SERIES A NOTE AGREEMENT. Except as modified hereby, all of the terms and provisions of the Series A Note Agreement shall remain in full force and effect. 11 12 SECTION 36. GOVERNING LAW. This First Supplemental Series A Note Agreement and the Series A Note Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. SECTION 37. SEVERABILITY. If any provision of this First Supplemental Series A Note Agreement shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this First Supplemental Series A Note Agreement. SECTION 38. COUNTERPARTS. This Agreement may be signed in several counterparts, each of which will be an original and all of which together will constitute the same instrument. [Signatures on following page.] 12 13 IN WITNESS WHEREOF, the parties hereto have cause this First Supplemental Series A Note Agreement to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien _________________________________ Name: Edward J. O'Brien _________________________________ Title: Executive Vice President & Treasurer _________________________________ [CORPORATE SEAL] NORWEST BANK MINNESOTA, N.A. as Trustee and Paying Agent By: /s/ Polly B. Berquist _________________________________ Name: Polly B. Berquist _________________________________ Title: Assistant Vice President _________________________________ 13 14 EXHIBIT C CERTIFICATE OF REMARKETING OF NOTES TO EFFECT REINSTATEMENT OF PURCHASE DRAWING [DATE] CoreStates Bank, N.A. 530 Walnut Street Philadelphia, Pennsylvania 19106 Attention: Ms. Cheryl Morton Letter of Credit Department, 7th Floor RE: IRREVOCABLE LETTER OF CREDIT REF. NO. ___________ FOR THE ACCOUNT OF HANOVER DIRECT PENNSYLVANIA, INC., HANOVER DIRECT VIRGINIA INC. AND GUMP'S CORP. (THE LETTER OF CREDIT") Ladies and Gentlemen: The undersigned, being the Remarketing Agent, as defined in the above-referenced Letter of Credit, hereby certifies that Bank Notes in the principal amount of $_______ (the "Remarketed Notes") for which a Purchase Drawing was made by the Trustee and previously paid by you, have been remarketed by us and we are holding the remarketing proceeds pursuant to Section 3.08(d)(ii) of the Note Agreement. Please confirm to the Trustee that the Principal Component has been reinstated automatically by an amount equal to the said principal amount of the Remarketed Notes and that the Interest Component has been reinstated automatically by an amount equal to thirty-five (35) days' interest on the Principal Component so reinstated computed at the Maximum Rate. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the above-referenced Letter of Credit. IN WITNESS WHEREOF, the Remarketing Agent has executed and delivered this Certificate as of ___ of ____, ___. NATIONSBANK, NATIONAL ASSOCIATION, as Remarketing Agent By: _______________________________________ [Name and Title] EX-10.46 19 AMENDMENT TO PLACEMENT AGREEMENT 1 EXHIBIT 10.46 FIRST AMENDMENT TO PLACEMENT AGREEMENT This FIRST AMENDMENT TO PLACEMENT AGREEMENT (the "First Amendment"), dated as of December 29, 1995, by and between HANOVER DIRECT, INC., a corporation organized and existing under the laws of the State of Delaware (the "Borrower"), and NATIONSBANK, N.A., a national banking association and the successor to NationsBank of North Carolina, N.A. (the "Placement Agent"); W I T N E S S E T H: WHEREAS, the Borrower has previously issued and sold its interest bearing flexible term notes in two separate series (the first series of such notes, as amended as of the date hereof, being hereinafter referred to as the "Series A Notes", the second series of such notes, as amended as of the date hereof, being hereinafter referred to as the "Series B Notes", and the Series A Notes and the Series B Notes being hereinafter collectively referred to as the "Notes") each in the aggregate principal amount of $10,000,000, pursuant to the provisions of a Series A Note Agreement dated as of November 9, 1994 between the Borrower and Norwest Bank Minnesota, N.A., as Trustee and Paying Agent (the "Trustee") (as amended by that certain First Supplemental Series A Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee and as hereinafter amended, the "Series A Note Agreement"), and the Series B Note Agreement dated as of April 27, 1995 between the Borrower and the Trustee (as amended by that certain First Supplemental Series B Note Agreement dated as of December 29, 1995 and as hereinafter amended, the "Series B Note Agreement", and together with the Series A Note Agreement being hereinafter collectively referred to as the "Note Agreements"), respectively; and WHEREAS, the Borrower and the Placement Agent entered into the Placement Agreement dated as of November 9, 1994 (the "Placement Agreement") pursuant to which the Borrower appointed the Placement Agent as its agent to perform certain services in connection with the placement of the Notes upon initial issuance thereof; and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series A Letter of Credit in substitution for the Series A Letter of Credit (each as defined in the Series A Note Agreement) and a Substitute Series B Letter of Credit in substitution for the Series B Letter of Credit (each as defined in the Series B Note Agreement) pursuant to the terms of the respective Note Agreements; and WHEREAS, in order to more fully evidence the substitution of letters of credit referenced above, the Borrower and the Placement Agent desire to amend the Placement Agreement, subject to the terms and conditions set forth herein; 2 NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used herein and not otherwise herein defined shall have the meanings ascribed to them in the applicable Note Agreement. SECTION 2. AMENDMENT TO SECOND RECITAL OF THE PLACEMENT AGREEMENT. The Second Recital of the Placement Agreement set forth on page 1 thereof is hereby deleted in its entirety and replaced with the following: WHEREAS, the payment when due of the principal of, interest on and Purchase Price (as defined in the applicable Note Agreement) of the Series A Notes will be supported, to the extent provided therein, by the Series A Letter of Credit, and the payment when due of the principal of, interest on and Purchase Price of the Series B Notes will be supported, to the extent provided therein, by the Series B Letter of Credit (the Series A Letter of Credit and the Series B Letter of Credit are sometimes hereinafter collectively referred to as the "Letter of Credit"), each issued in favor of the Trustee by CoreStates Bank, N.A. (the "L/C Issuer") and each in an amount of not less than $10,145,833, representing the principal amount of the applicable series of Notes plus 35 days interest on such amount computed at the Maximum Rate (as defined in the applicable Note Agreement) on the basis of actual number of days elapsed in a year of 360 days, all pursuant to (a) the respective Applications for Irrevocable Standby Letter of Credit (the "Applications"), each dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties (as defined in the applicable Note Agreement) and Congress Financial Corporation (the "Lender") requesting the issuance by the L/C Issuer of the Series A Letter of Credit and the Series B Letter of Credit, respectively, (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender (the Lender and the L/C issuer are hereinafter sometimes collectively referred to as the "Bank"), acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the respective Applications pursuant to which the Series A Letter of Credit and the Series B Letter of Credit are issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement, and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series A Letter of Credit or Substitute Series B Letter of Credit or the lender providing credit support to such issuer (individually and collectively, the "Reimbursement Agreement"); SECTION 3. AMENDMENT TO SECTION 7 OF THE PLACEMENT AGREEMENT. Subsection (b) of Section 7 of the Placement Agreement is hereby amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender". 2 3 SECTION 4. AMENDMENT TO SECTION 10 OF THE PLACEMENT AGREEMENT. Section 10 of the Placement Agreement is hereby amended by deleting the reference to, and the address of, the "Bank" therein and replacing them with the following: If to the L/C Issuer: CoreStates Bank, N. A. 530 Walnut Street Philadelphia, Pennsylvania 19106 Attention: Ms. Cheryl Morton, Letter of Credit Department, 7th Floor Telephone No.: (215) 973-8157 Fax No.: (215) 973-6352 If to the Lender: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Mr. Mark Fagnani Telephone No.: (212) 840-2000 Fax No.: (212) 545-4283 SECTION 5. AMENDMENT TO PLACEMENT AGREEMENT. The Placement Agreement is hereby amended by deleting each reference therein to "NationsBank of North Carolina, N.A." and replacing it with a reference to "NationsBank, N.A.". SECTION 6. EFFECT OF FIRST AMENDMENT. Except as modified hereby, all of the terms and provisions of the Placement Agreement shall remain in full force and effect. SECTION 7. GOVERNING LAW. This First Amendment and the Placement Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of North Carolina. SECTION 8. SEVERABILITY. If any provision of this First Amendment shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this First Amendment. SECTION 9. COUNTERPARTS. This First Amendment may be executed in several counterparts, each of which shall be an original and all of which, taken together, shall constitute one and the same instrument. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By:______________________________________ Name:____________________________________ Title:___________________________________ NATIONSBANK, N.A. By:______________________________________ Name:____________________________________ Title:___________________________________ 4 EX-10.47 20 AMENDMENT TO REMARKETING AND INTEREST SER. AGMT. 1 EXHIBIT 10.47 FIRST AMENDMENT TO REMARKETING AND INTEREST SERVICES AGREEMENT This FIRST AMENDMENT TO REMARKETING AND INTEREST SERVICES AGREEMENT (the "First Amendment"), dated as of December 29, 1995, by and between HANOVER DIRECT, INC., a corporation organized and existing under the laws of the State of Delaware (the "Borrower"), and NATIONSBANK, N.A., a national banking association and the successor to NationsBank of North Carolina, N.A. (the "Remarketing Agent"); W I T N E S S E T H: WHEREAS, the Borrower has previously issued and sold its interest bearing flexible term notes in two separate series (the first series of such notes, as amended as of the date hereof, being hereinafter referred to as the "Series A Notes", the second series of such notes, as amended as of the date hereof, being hereinafter referred to as the "Series B Notes", and the Series A Notes and the Series B Notes being hereinafter collectively referred to as the "Notes") each in the aggregate principal amount of $10,000,000, pursuant to the provisions of a Series A Note Agreement dated as of November 9, 1994 between the Borrower and Norwest Bank Minnesota, N.A., as Trustee and Paying Agent (the "Trustee") (as amended by that certain First Supplemental Series A Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee and as hereinafter amended, the "Series A Note Agreement"), and the Series B Note Agreement dated as of April 27, 1995 between the Borrower and the Trustee (as amended by that certain First Supplemental Series B Note Agreement dated as of December 29, 1995 and as hereinafter amended, the "Series B Note Agreement", and together with the Series A Note Agreement being hereinafter collectively referred to as the "Note Agreements"), respectively; and WHEREAS, the Borrower and the Remarketing Agent entered into the Remarketing and Interest Services Agreement dated as of November 9, 1994 (the "Remarketing Agreement") pursuant to which the Borrower appointed the Remarketing Agent as its agent to perform certain services in connection with the remarketing of the Notes tendered for purchase and the determination of the interest rates and interest periods with respect to the Notes; and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series A Letter of Credit in substitution for the Series A Letter of Credit (each as defined in the Series A Note Agreement) and a Substitute Series B Letter of Credit in substitution for the Series B Letter of Credit (each as defined in the Series B Note Agreement) pursuant to the terms of the respective Note Agreements; and WHEREAS, in order to more fully evidence the substitution of letters of credit referenced above, the Borrower and the Remarketing Agent desire to amend the Remarketing Agreement, subject to the terms and conditions set forth herein; 2 NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used herein and not otherwise herein defined shall have the meanings ascribed to them in the applicable Note Agreement. SECTION 2. AMENDMENT TO SECOND RECITAL OF THE REMARKETING AGREEMENT. The Second Recital of the Placement Agreement set forth on page 1 thereof is hereby deleted in its entirety and replaced with the following: WHEREAS, the payment when due of the principal of, interest on and Purchase Price (as defined in the applicable Note Agreement) of the Series A Notes will be supported, to the extent provided therein, by the Series A Letter of Credit, and the payment when due of the principal of, interest on and Purchase Price of the Series B Notes will be supported, to the extent provided therein, by the Series B Letter of Credit (the Series A Letter of Credit and the Series B Letter of Credit are sometimes hereinafter collectively referred to as the "Letter of Credit"), each issued in favor of the Trustee by CoreStates Bank, N.A. (the "L/C Issuer") and each in an amount of not less than $10,145,833, representing the principal amount of the applicable series of Notes plus 35 days interest on such amount computed at the Maximum Rate (as defined in the applicable Note Agreement) on the basis of actual number of days elapsed in a year of 360 days, all pursuant to (a) the respective Applications for Irrevocable Standby Letter of Credit (the "Applications"), each dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties (as defined in the applicable Note Agreement) and Congress Financial Corporation (the "Lender") requesting the issuance by the L/C Issuer of the Series A Letter of Credit and the Series B Letter of Credit, respectively, (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender (the Lender and the L/C issuer are hereinafter sometimes collectively referred to as the "Bank"), acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the respective Applications pursuant to which the Series A Letter of Credit and the Series B Letter of Credit are issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement, and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series A Letter of Credit or Substitute Series B Letter of Credit or the lender providing credit support to such issuer (individually and collectively, the "Reimbursement Agreement"); SECTION 3. AMENDMENT TO SECTION 7 OF THE REMARKETING AGREEMENT. Subsection (b) of Section 7 of the Remarketing Agreement is hereby amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender". 2 3 SECTION 4. AMENDMENT TO SECTION 11 OF THE REMARKETING AGREEMENT. Section 11 of the Remarketing Agreement is hereby amended by deleting the reference to, and the address of, the "Bank" therein and replacing them with the following: If to the L/C Issuer: CoreStates Bank, N. A. 530 Walnut Street Philadelphia, Pennsylvania 19106 Attention: Ms. Cheryl Morton, Letter of Credit Department, 7th Floor Telephone No.: (215) 973-8157 Fax No.: (215) 973-6352 If to the Lender: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Mr. Mark Fagnani Telephone No.: (212) 840-2000 Fax No.: (212) 545-4283 SECTION 5. AMENDMENT TO REMARKETING AGREEMENT. The Remarketing Agreement is hereby amended by deleting each reference therein to "NationsBank of North Carolina, N.A." and replacing it with a reference to "NationsBank, N.A.". SECTION 6. EFFECT OF FIRST AMENDMENT. Except as modified hereby, all of the terms and provisions of the Remarketing Agreement shall remain in full force and effect. SECTION 7. GOVERNING LAW. This First Amendment and the Remarketing Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of North Carolina. SECTION 8. SEVERABILITY. If any provision of this First Amendment shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this First Amendment. SECTION 9. COUNTERPARTS. This First Amendment may be executed in several counterparts, each of which shall be an original and all of which, taken together, shall constitute one and the same instrument. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By:______________________________________ Name:____________________________________ Title:___________________________________ NATIONSBANK, N.A. By:______________________________________ Name:____________________________________ Title:___________________________________ 4 EX-10.49 21 SECOND AMENDMENT TO SERIES A NOTE 1 EXHIBIT 10.49 SECOND AMENDMENT TO SERIES A NOTE This SECOND AMENDMENT TO SERIES A NOTE dated as of December 18, 1996, is made by HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), with the consent of Norwest Bank Minnesota, N.A., as trustee and paying agent (the "Trustee" or the "Paying Agent", as applicable); W I T N E S S E T H: WHEREAS, the Borrower and the Trustee entered into the Series A Note Agreement dated as of November 9, 1994, as amended pursuant to that certain First Supplemental Series A Note Agreement dated as of December 29, 1995 and that certain Second Supplement Series A Note Agreement dated as of December 18, 1996 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series A Note Agreement") pursuant to which the Borrower issued and sold its interest bearing Flexible Term Notes, Series A (the "Series A Notes") in the aggregate principal amount of $10,000,000 and in the form of Series A Note R-1, registered in the name of Cede & Co. (as defined in the Series A Note Agreement) and deposited with the Paying Agent ("Series A Note R-1"); and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series A Letter of Credit in substitution for the Series A Letter of Credit (each as defined in the Series A Note Agreement); and WHEREAS, in order to more fully evidence the delivery of the Substitute Series A of Letter of Credit referenced above, the Borrower and the Trustee desire to amend Series A Note R-1. subject to the terms and conditions set forth herein, NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used in this Second Amendment to Series A Note and not otherwise herein defined shall have the meaning ascribed to them in the Series A Note Agreement. SECTION 2. AMENDMENTS TO SERIES A NOTE R-1. Series A Note R-1 is hereby amended as follows: (a) The second boldface paragraph on the first page of Series A Note R-1 (prior to the text thereof) is hereby, deleted in its entirety and replaced with the following: 2 THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED BY, SWISS BANK CORPORATION, NEW YORK BRANCH (THE "BANK"), IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ALTHOUGH NOT GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL AND INTEREST ON THIS SERIES A NOTE AND, IF REMARKETING PROCEEDS ARE NOT AVAILABLE, THE PURCHASE PRICE OF THIS SERIES A NOTE, WILL BE MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT ISSUED BY THE BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING UNDER THE SERIES A LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER THAN AGAINST THE BANK. (b) The second paragraph of the text of Series A Note R-1, beginning on page 2 thereof, is amended by deleting the first sentence thereof and replacing it with the following: This Series A Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A Notes"), issued pursuant to a Series A note Agreement dated as of November 9, 1994 (the "Series A Note Agreement"), as amended by the First Supplemental Series A Note Agreement dated December 29, 1995 and the Second Supplemental Note Agreement dated December 18, 1996 between the Borrower and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, for the purpose of refinancing and/or financing certain construction, refurbishment and costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series A Note Agreement, the Borrower has caused Swiss Bank Corporation, New York Branch (the "Bank") to issue its irrevocable Series A Letter of Credit dated the Date of Issuance (as hereinafter defined and set forth above) of the Series A Notes (the "Series A Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series A Facility Amount and unpaid interest on or Purchase Price of the Series A Notes, but not to exceed $9,638,541, pursuant to Reimbursement Agreement dated as of December 18, 1996 (the "Reimbursement Agreement") by and among the Borrower and the Bank, which Series A Letter of Credit initially expires (subject to extension of earlier termination as provided in the Reimbursement Agreement and the Series A Note Agreement) on February 28, 1998. Substitute letters of credit may be delivered in accordance with the Series A Note Agreement. (c) The seventh paragraph of the text of Series A Note R-1 beginning on page 4 thereof, is amended by deleting the third 2 3 sentence thereof in its entirety, and replacing it with the following: Subject to the provisions of Section 7.09 of the Series A Note Agreement relating to the Bank as holder of the Series A Notes, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of. and interest on, the Series A Notes, (ii) notices and (iii) voting, subject to certain qualifications as stated in the Series A Note Agreement. (d) Section 1 of Series A Note R-1, beginning on page 5 thereof, is amended by deleting the following definition: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (e) Subsection (f) of Section 3 of Series A Note R-1, beginning on page 9 thereof, is amended by deleting the reference to the "Lender" in the third line thereof and replacing it with a reference to the "Bank." (f) Subsection (a) of Section 4 of Series A Note R-1, beginning on page 10 thereof, is amended by deleting the reference to the "Lender" in the fourth line of the last paragraph thereof and replacing it with a reference to the "Bank." (g) Section 7 of Series A Note R-1, beginning on page 13 thereof, is amended by deleting the second sentence of the first paragraph thereof in their entirety and replacing them with the following: The Series A Note Agreement directs the Trustee to declare an acceleration upon written notice be, the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement and upon the occurrence of certain other Events of Default under the Series A Note Agreement. The Trustee has the right to accelerate the entire unpaid principal of and interest on the Series A Notes in certain events only with the Banks consent, all as provided in Article VII of the Series A Note Agreement to which reference is hereby made. Section 3. Effect of Second Amendment to Series A Note; No Novation. Except as modified hereby, all of the terms and provisions of Series A Note R-1 shall remain in full force and effect. This Second Amendment to Series A Note amends Series A 3 4 Note R-1 and shall not be construed to constitute a novation thereof in any manner whatsoever. Section 4. Governing Law. This Second Amendment to Series A Note and Series A Note R-1, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with the laws of the State of New York. Section 5. Severability. If any provision of this Second Amendment to Series A Note shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this Second Amendment to Series A Note. [Signatures on following page] 4 5 IN WITNESS WHEREOF, the Borrower has caused this Second Amendment to Series A Note to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ________________________________ Name: Edward J. O'Brien ______________________________ Title: Senior Vice President Secretary & Treasurer _____________________________ [CORPORATE SEAL] 5 6 CONSENT TO SECOND AMENDMENT TO SERIES A NOTE Norwest Bank Minnesota, N.A., as Paying Agent, hereby consents to the amendments to Series A Note R-1 provided for herein. NORWEST BANK MINNESOTA, N.A., as Trustee and Paying Agent By: /s/ Marianna C. Sterson _____________________________________ Name: Marianna C. Sterson ___________________________________ Title: Corporate Trust Officer __________________________________ 6 EX-10.52 22 SERIES B NOTE AGREEMENT DATED APRIL 25, 1995 1 Exhibit 10.52 SERIES B NOTE AGREEMENT Dated as of April 27, 1995 Between HANOVER DIRECT, INC. and NORWEST BANK MINNESOTA, N.A., as Trustee and Paying Agent $10,000,000 HANOVER DIRECT, INC. FLEXIBLE TERM NOTES, SERIES B 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION
Page ---- Section 1.01. Definitions........................................................................................3 Section 1.02. Rules of Construction..............................................................................9 ARTICLE II THE SERIES B NOTES Section 2.01. Authorization of Series B Notes; Form of Series B Notes; Details of Series B Notes............................................................................10 Section 2.02. Interest on the Series B Notes....................................................................11 Section 2.03. Execution and Authentication......................................................................13 Section 2.04. Series B Note Register............................................................................13 Section 2.05. Registration and Exchange of Series B Notes; Persons Treated as Owners....................................................................................14 Section 2.06. Authorization of Series B Notes...................................................................14 Section 2.07. Book-Entry System; Recording and Transfer of Ownership of the Series B Notes...............................................................................17 Section 2.08. Mutilated, Lost, Stolen, Destroyed or Undelivered Series B Notes..................................18 Section 2.09. Cancellation of Series B Notes....................................................................19 ARTICLE III REDEMPTION, PURCHASE AND REMARKETING Section 3.01. Redemption of Series B Notes......................................................................20 Section 3.02. Redemption Date...................................................................................22 Section 3.03. Selection of Series B Notes To Be Redeemed........................................................22 Section 3.04. Notice of Redemption..............................................................................23 Section 3.05. Payment of Series B Notes Called for Redemption; Effect of Redemption...................................................................................24 Section 3.06. Series B Notes Redeemed in Part...................................................................24 Section 3.07. Purchase of Series B Notes........................................................................24 Section 3.08. Remarketing of Purchased Series B Notes...........................................................25 ARTICLE IV PAYMENT OF SERIES B NOTES AND CREATION OF SERIES B LETTER OF CREDIT FUND Section 4.01. Payment of Series B Notes.........................................................................28 Section 4.02. Creation of Series B Letter of Credit Fund. ......................................................28 Section 4.03. Funds Received; Application of Money in Series B Letter of Credit Fund. ...............................................................................29 Section 4.04. Moneys To Be Held in Trust. .....................................................................30 Section 4.05. Investment of Moneys. ...........................................................................30 ARTICLE V SERIES B LETTER OF CREDIT Section 5.01. Requirements for Series B Letter of Credit. .....................................................32 Section 5.02. Draws on Series B Letter of Credit; Extensions. ..................................................32
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Page ---- Section 5.03. Substitute Series B Letter of Credit..............................................................34 Section 5.04. Enforcement of the Series B Letter of Credit. ...................................................35 ARTICLE VI GENERAL COVENANTS AND REPRESENTATIONS Section 6.01. Payment of Principal, Interest and Premium. .....................................................37 Section 6.02. Covenant to Perform and Representations and Warranties of the Borrower as to Authority, Etc. .............................................................37 Section 6.03. Further Instruments and Actions. ................................................................38 Section 6.04. Additional Representations, Warranties and Covenants of the Borrower. ..........................38 ARTICLE VII DEFAULTS AND REMEDIES Section 7.01. Events of Default. ..............................................................................39 Section 7.02. Acceleration and Duty to Draw on Series B Letter of Credit........................................39 Section 7.03. Disposition of Amounts Drawn on Series B Letter of Credit.........................................40 Section 7.04. No Remedy Exclusive. ............................................................................40 Section 7.05. Application of Moneys. ..........................................................................41 Section 7.06. Waivers of Events of Default. ...................................................................41 Section 7.07. Unconditional Right to Receive Principal, Premium and Interest....................................42 Section 7.08. [Reserved]. .....................................................................................42 Section 7.09. Bank Deemed Holder. .............................................................................42 ARTICLE VIII TRUSTEE, REMARKETING AGENT AND PAYING AGENT Section 8.01. Duties of Trustee.................................................................................43 Section 8.02. Rights of Trustee.................................................................................44 Section 8.03. Individual Rights of Trustee, Etc.................................................................45 Section 8.04. Trustee's Disclaimer. ...........................................................................45 Section 8.05. Notice of Defaults. .............................................................................45 Section 8.06. Compensation and Indemnification of Trustee. ....................................................45 Section 8.07. Eligibility of Trustee. .........................................................................45 Section 8.08. Replacement of Trustee. .........................................................................46 Section 8.09. Duties of Remarketing Agent.......................................................................47 Section 8.10. Eligibility of Remarketing Agent; Replacement. ..................................................47 Section 8.11. Duties of Placement Agent.........................................................................48 Section 8.12. Eligibility of Placement Agent; Replacement. ....................................................48 Section 8.13. Appointment of and Duties of Paying Agent. .....................................................49 Section 8.14. Qualifications of Paying Agent; Resignation; Removal. ...........................................49 Section 8.15. Successor Trustee, Paying Agent or Remarketing Agent by Merger....................................50 Section 8.16. Trustee's Covenant as to Bank Notes. ............................................................50 Section 8.16. Trustee and Paying Agent as One Entity. .........................................................51 ARTICLE IX AMENDMENTS OF AGREEMENT Section 9.01. Without Consent of Noteholders. .................................................................52 Section 9.02. With Consent of Noteholders. ....................................................................53 Section 9.03. Effect of Consents. .............................................................................53 Section 9.04. Notation on or Exchange of Series B Notes. ......................................................53
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Page ---- Section 9.05. Signing by Trustee of Amendments. ...............................................................53 Section 9.06. Bank and Remarketing Agent Consent Required. ...................................................54 Section 9.07. Notice to Noteholders. ..........................................................................54 ARTICLE X MISCELLANEOUS Section 10.01. Notices..........................................................................................55 Section 10.02. Noteholders' Consents. .........................................................................56 Section 10.03. Notices to Rating Agency. ......................................................................57 Section 10.04. Limitation of Rights. ..........................................................................57 Section 10.05. Severability. ..................................................................................57 Section 10.06. Payments Due on Non-Business Days. .............................................................58 Section 10.07. Governing Law. .................................................................................58 Section 10.08. Counterparts. ..................................................................................58 Section 10.09. Binding Effect. ................................................................................59 EXHIBIT A - FORM OF SERIES B NOTE...............................................................................A-1 EXHIBIT B - NOTICE OF MANDATORY REPURCHASE......................................................................B-1
iii 5 NEW YORK CITY JUNE 1997 6 SERIES B NOTE AGREEMENT THIS SERIES B NOTE AGREEMENT dated as of April 27, 1995 between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and NORWEST BANK MINNESOTA, N.A., a national banking association organized under the laws of the United States of America and having its principal office in Minneapolis, Minnesota (the "Trustee"), as trustee of the Series B Letter of Credit (hereinafter defined) and as Paying Agent (hereinafter defined) for the Series B Notes (hereinafter defined); W I T N E S S E T H: WHEREAS, the Borrower intends to issue and sell its interest bearing flexible term notes in substantially the form of Exhibit A attached hereto (the "Series B Notes"; individually, a "Series B Note") in an aggregate principal amount not to exceed Ten Million Dollars ($10,000,000) (the "Series B Facility Amount"), and to use the proceeds from such issuance and sale (together with the proceeds from the issuance and sale of a subsequent series of notes) to refinance and/or finance certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower, located in San Francisco, California (the "Project"); and WHEREAS, the payment when due of the principal of, interest on and Purchase Price (hereinafter defined) of the Series B Notes will be supported, to the extent provided therein, by the Series B Letter of Credit issued in favor of the Trustee by the Bank (hereinafter defined) in the initial amount of $10,145,833, representing the Series B Facility Amount (hereinafter defined) plus 35 days interest on such amount computed at the Maximum Rate (hereinafter defined), on the basis of actual number of days elapsed in a year of 360 days, all pursuant to and as more fully set forth in the Reimbursement Agreement (hereinafter defined); and WHEREAS, the Borrower has requested that the Trustee act (i) hereunder for the benefit of the Noteholders (hereinafter defined) to perform certain services in connection with the issuance, authentication and delivery of, the registration, transfer and exchange of, and the payment of principal, interest and Purchase Price with respect to the Series B Notes issued hereunder and (ii) as the custodian of the Series B Letter of Credit for the benefit of the Noteholders, and the Trustee is willing to accept such appointments and perform such services on the terms and subject to the conditions set forth herein; and WHEREAS, the Borrower has requested that NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) act as its agent hereunder to perform certain services in connection with the placement of the Series B Notes upon issuance thereof, and NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) is willing to accept such appointment and perform such services on the terms and subject to the conditions set forth herein and in the Placement Agreement (hereinafter defined); and 7 WHEREAS, the Borrower has requested that NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) act as its agent hereunder to perform certain services in connection with the remarketing of Series B Notes tendered for purchase and the determination of the interest rates and interest periods with respect to the Series B Notes, and NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) is willing to accept such appointment and perform such services on the terms and subject to the conditions set forth herein and in the Remarketing Agreement (hereinafter defined); and WHEREAS, the Borrower and the Trustee desire to set forth certain of the terms and conditions with respect to the issuance of the Series B Notes; NOW, THEREFORE, the parties hereto agree as follows: 2 8 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION SECTION 1.01. DEFINITIONS. For all purposes of this Agreement, unless the context requires otherwise, the following terms shall have the following meanings: "AFFILIATE" means singularly and collectively, any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, the Borrower, and the legal representative, successor or assign of any such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" the Borrower if the Borrower possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. "AGREEMENT" means this Series B Note Agreement, as it may be amended from time to time in accordance with its terms. "AUTHORIZED DENOMINATIONS" means with respect to all Series B Notes $100,000 or any integral multiple of $100,000 in excess thereof. "BALANCE CERTIFICATE AGREEMENT" means the Balance Certificate Agreement dated as of March 18, 1992 between the Trustee, as transfer agent, and DTC, as Securities Depository, governing the mechanisms for the registration of transfer of the Series B Notes while the Series B Notes are held pursuant to a book-entry system maintained by DTC. "BANK" means the issuer of the Series B Letter of Credit, initially NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) and upon the issuance and delivery of a Substitute Series B Letter of Credit, shall mean the issuer of such Substitute Series B Letter of Credit. "BANK NOTES" means any Series B Notes purchased with proceeds from a draw under the Series B Letter of Credit and pledged to the Bank under the Reimbursement Agreement, including, in the event a book-entry system with respect to the Series B Notes is in effect, any beneficial ownership interest therein; provided that in the event that the Bank fails to honor a drawing under the Series B Letter of Credit to fund such a purchase and the Borrower purchases such Series B Notes with its own funds, "Bank Notes" shall include such Series B Notes except that such Series B Notes shall not be pledged to the Bank under the Reimbursement Agreement. "BENEFICIAL OWNER" or "BENEFICIAL OWNER" means the holder of the beneficial ownership interest in each Series B Note as evidenced on (i) if such Series B Note is held pursuant to a book-entry system, the books maintained by the Securities Depository (and, as applicable, its participants or persons acting through such participants), as more fully 3 9 described in the Letter of Representations, or (ii) if such Series B Note is not held pursuant to a book-entry system, the register maintained by the Paying Agent. "BORROWER" means Hanover Direct, Inc., a Delaware corporation, and any successor thereto. "BORROWER REPRESENTATIVE" means a Person at the time designated to act on behalf of the Borrower by a written instrument furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Borrower by such Person's President, any Executive Vice President, any Senior Vice President, any Vice President or the Chairman of such Person's Board of Directors, or, in the case of a Person other than a corporation, the person or persons having comparable positions or roles. The certificate may designate an alternate or alternates. "BUSINESS DAY" means any day other than (a) a Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or in the city or cities in which the corporate trust office of the Trustee or the Paying Agent, the primary office of the Remarketing Agent or the Placement Agent or the paying office of the Bank are authorized by law or executive order to close or (c) a day on which the New York Stock Exchange is closed. For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series B Letter of Credit. "CEDE & CO." means Cede & Co., the nominee of DTC or any successor nominee of DTC with respect to the Series B Notes. "CREDIT MODIFICATION" means and shall be deemed to occur upon the acceptance of a Substitute Series B Letter of Credit by the Trustee if (a) as a result of such acceptance, the rating then assigned to the Series B Notes by any Rating Agency then rating the Series B Notes would be lowered or eliminated or (b) in the event the Series B Notes are not then rated, the issuer of such Substitute Series B Letter of Credit has (i) senior debt or long-term bank deposits which are rated by a Rating Agency at a lower rating than the rating then assigned to the senior debt or long-term bank deposits of the issuer of the expiring Series B Letter of Credit, or (ii) outstanding letters of credit or other similar instruments supporting debt obligations which are rated by a Rating Agency at a lower rating than the rating assigned to debt obligations supported with letters of credit or similar instruments issued by the issuer of the expiring Series B Letter of Credit. "DATE OF ISSUANCE" means the date upon which the Series B Notes are issued, authenticated and delivered in accordance with Section 2.06. "DTC" means The Depository Trust Company, a limited purpose company organized under the laws of the State of New York, and its successors and assigns. "EVENT OF DEFAULT" is defined in Section 7.01. 4 10 "INTEREST PAYMENT DATE" means the first day after the last day of each Interest Period. "INTEREST PERIOD" means, with respect to any Series B Note, each period of between one (1) and one hundred eighty (180) days established from time to time in accordance with Section 2.02(a). "INTEREST RATE" means, with respect to any Series B Note, the term, nonvariable interest rate on such Series B Note established from time to time in accordance with Section 2.02(a). In no event shall the Interest Rate exceed the Maximum Rate. "INTEREST RESERVE ACCOUNT" means the Interest Reserve Account of the Series B Letter of Credit Fund created by Section 4.02. "LETTER OF REPRESENTATIONS" has the meaning given to that term in Section 2.07. "MATURITY DATE" means October 1, 2009. "MAXIMUM RATE" means the lesser of (a) the highest interest rate which may be borne by the Series B Notes under State law and (b) fifteen percent (15%) per annum. "NOTICE OF MANDATORY PURCHASE" means that notice required to be prepared and given by the Trustee pursuant to Section 3.07. "OFFERING MEMORANDUM" means, collectively, the Preliminary Private Placement Memorandum of the Borrower dated April 19, 1995 and the Private Placement Memorandum of the Borrower dated as of the date of the initial issuance of Series B Notes hereunder, each prepared in connection with the initial offering of the Series B Notes, as the same may be amended or supplemented. "OPINION OF COUNSEL" means a written opinion of counsel who is reasonably acceptable to the Trustee, the Bank, the Placement Agent and the Remarketing Agent. The counsel may be an employee of or counsel to the Borrower, the Placement Agent, the Remarketing Agent, the Bank or the Trustee. "OUTSTANDING" when used with reference to Series B Notes means all Series B Notes which have been authenticated and delivered by the Paying Agent under this Agreement, except the following: (a) Series B Notes cancelled, or purchased by or delivered to the Paying Agent for cancellation, pursuant to the provisions of this Agreement; (b) Series B Notes that have become due (at maturity or on redemption, acceleration or otherwise) and for the payment of which, including interest accrued to the due date, sufficient moneys are held by the Paying Agent; and (c) Series B Notes in lieu of which others have been authenticated under Section 2.05 (relating to registration and exchange of Series B Notes) or Section 2.08 (relating to mutilated, lost, stolen, destroyed or undelivered Series B Notes). 5 11 "OWNER", "OWNERS", "NOTEHOLDER" "NOTEHOLDER", "HOLDER", "HOLDER" or words of similar import means: (a) in the event that the book-entry system of evidence and transfer of ownership of the Series B Notes is employed pursuant to Section 2.07, the Securities Depository Nominee, and (b) in all other cases, the registered owner or owners of any Series B Note as shown on the register maintained by the Paying Agent. "PARTICIPANTS" means securities brokers and dealers, banks, trust companies and clearing corporations which have access to the Securities Depository's system. "PAYING AGENT" shall mean the issuing and paying agent with respect to the Series B Notes, initially Norwest Bank Minnesota, N.A. "PERMITTED INVESTMENTS" means: (i) investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America or any agency or instrumentality thereof; provided, that such obligations mature within one year from the date of acquisition thereof; (ii) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States of America or any state thereof having capital surplus and undivided profits aggregating at least $100,000,000 and having ratings from each Rating Agency then rating the Series B Notes at least equivalent to each such Rating Agency's then current rating on the Series B Notes and which are fully secured by obligations described in paragraph (i) above; and (iii) investments in federal funds, time deposits or bankers' acceptances maturing within 365 days from the date of issuance or money-market mutual funds or fully insured FDIC deposits, in each case rated by each Rating Agency then rating the Series B Notes at least equivalent to such Rating Agency's then current rating on the Series B Notes. "PERSON" means (a) any individual, (b) any corporation, partnership, joint venture, association, joint-stock company, business trust or unincorporated organization, or grouping of any such entities, in each case formed or organized under the laws of the United States of America, any state thereof or the District of Columbia or (c) the United States of America or any state thereof, or any political subdivision of either thereof, or any agency, authority or other instrumentality of any of the foregoing. "PLACEMENT AGENT" means initially NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) and any successor agent or agents appointed from time to time pursuant to Section 8.12. "PLACEMENT AGREEMENT" means the Placement Agreement dated as of November 9, 1994, between the Borrower and the Placement Agent with respect to the placement of the Series B Notes upon issuance thereof, and any and all modifications, alterations, amendments and supplements thereto. 6 12 "PROJECT" means the refinancing and/or financing of certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California.. "PURCHASE DATE" means, with respect to any Series B Notes, the date on which such Series B Notes are required to be purchased pursuant to Section 3.07(a). "PURCHASE PRICE" means an amount equal to 100% of the principal amount of any Series B Note tendered or deemed tendered to the Trustee for purchase pursuant to Section 3.07 hereof, plus accrued and unpaid interest thereon to, but excluding, the Purchase Date. "RATING AGENCY" means Moody's Investors Service, Inc., if such agency's ratings are in effect with respect to the Series B Notes, and Standard & Poor's Ratings Group, if such agency's ratings are in effect with respect to the Series B Notes, and their respective successors and assigns. If either such corporation ceases to act as a securities rating agency, the Borrower may, with the approval of the Placement Agent, the Remarketing Agent and the Bank, appoint any nationally recognized securities rating agency as a replacement. "RECORD DATE" means, with respect to each Interest Payment Date, the Trustee's close of business on the Business Day next preceding such Interest Payment Date. "REIMBURSEMENT AGREEMENT" means (a) the Credit Facilities and Reimbursement Agreement dated as of October 12, 1994, by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as Agent, pursuant to which, among other things, the Series B Letter of Credit is issued by the Bank and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto and (b) any similar agreement between the Borrower and the issuer of a Substitute Series B Letter of Credit. "REMARKETING AGENT" means initially NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.) and any successor agent or agents appointed from time to time pursuant to Section 8.10. "REMARKETING AGREEMENT" means (a) the Remarketing and Interest Services Agreement dated as of November 9, 1994, between the Remarketing Agent and the Borrower, with respect to the remarketing of the Series B Notes and the determination of interest rates and interest periods for the Series B Notes, and any and all modifications, alterations, amendments and supplements thereto and (b) any agreement between the Borrower and any successor remarketing agent appointed pursuant to Section 8.10. "REMARKETING PROCEEDS" means funds received from purchasers (other than the Borrower or any Affiliate) of Series B Notes which have been remarketed by the Remarketing Agent as payment for such Series B Notes. "RESPONSIBLE OFFICER" means, when used with respect to the Trustee or the Paying Agent, any officer within the Corporate Trust Division (or any successor group of the Trustee or the Paying Agent) including any vice president, assistant vice president, assistant secretary 7 13 or any other officer or assistant officer of the Trustee or the Paying Agent customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively. "SECURITIES DEPOSITORY" means, initially, DTC, or any successor or substitute securities depository selected by the Borrower (with the consent of the Trustee and the Remarketing Agent), which shall maintain a book-entry system in respect of the Series B Notes. "SECURITIES DEPOSITORY NOMINEE" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the register maintained by the Paying Agent the Series B Note certificate to be delivered to and immobilized with the Paying Agent during continuation with such Securities Depository of participation in its book-entry system, and shall initially be Cede & Co. "SERIES B FACILITY AMOUNT" means $10,000,000, being the maximum aggregate principal amount of Series B Notes that may be issued hereunder. "SERIES B LETTER OF CREDIT" means an irrevocable letter of credit having the characteristics of a "credit" or "letter of credit" set forth in Section 5-103 of the Uniform Commercial Code of the State of North Carolina (or, in the case of a Substitute Series B Letter of Credit, Section 5-103 of the Uniform Commercial Code of the state under whose laws such Substitute Series B Letter of Credit is governed) except that a Series B Letter of Credit (a) may not be revocable and (b) may only be issued by (i) a national bank, (ii) any banking institution organized under the laws of any state, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the state or territorial banking commission or similar officials or (iii) a branch or agency of a foreign bank, provided that the nature and extent of federal and/or state regulation and the supervision of the particular branch or agency is substantially equivalent to that applicable to federal or state chartered domestic banks doing business in the same jurisdiction and which meets the requirements of Section 5.01. Initially, the term "Series B Letter of Credit" shall mean the irrevocable letter of credit issued by the Bank to the Trustee in accordance with Section 5.01, supporting the payment of the principal of, interest on and Purchase Price of the Series B Notes, including any permitted supplements or amendments and any renewals or extensions thereof, and, upon the expiration or termination of the Series B Letter of Credit and the issuance and delivery of a Substitute Series B Letter of Credit meeting the requirements set forth in this paragraph and in Sections 5.01 and 5.03, "Series B Letter of Credit" shall mean such Substitute Letter of Credit. "SERIES B LETTER OF CREDIT FUND" means the Series B Letter of Credit Fund created by Section 4.02. "SERIES B NOTE DOCUMENTS" mean the Series B Note, the Series B Note Agreement, the Series B Letter of Credit, the Placement Agreement, the Remarketing Agreement and the Reimbursement Agreement. "STATE" means the State of New York. 8 14 "SUBSTITUTE SERIES B LETTER OF CREDIT" shall have the meaning set forth in Section 5.03. "TRUSTEE" means the entity identified as such in the heading of this Agreement and such entity's successors under this Agreement. SECTION 1.02. RULES OF CONSTRUCTION. Unless the context otherwise requires, (a) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles applied on a consistent basis; (b) references to Articles and Sections are to the Articles and Sections of this Agreement; (c) terms defined elsewhere in this Agreement shall have the meanings therein prescribed for them; (d) words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders; (e) headings used in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof; (f) each reference herein or in the Series B Notes to a percentage of Series B Notes required for notices, consents or for any other reason shall be deemed to refer to Series B Notes then Outstanding; and (g) all references herein to time shall be Charlotte, North Carolina time unless otherwise expressly stated. END OF ARTICLE I 9 15 ARTICLE II THE SERIES B NOTES SECTION 2.01. AUTHORIZATION OF SERIES B NOTES; FORM OF SERIES B NOTES; DETAILS OF SERIES B NOTES. (a) AUTHORIZATION OF SERIES B NOTES; FORM OF SERIES B NOTES. The Borrower hereby authorizes and creates under this Series B Note Agreement an issue of Series B Notes to be designated "Hanover Direct, Inc. Flexible Term Notes, Series B." The total principal amount of Series B Notes that may be issued and outstanding hereunder shall not exceed the Series B Facility Amount (except as provided in Section 2.08 with respect to replacement of mutilated, lost, stolen, destroyed or undelivered Series B Notes). The Series B Notes are issuable in registered form without coupons in Authorized Denominations only, and shall be substantially in the form of Exhibit A to this Agreement, with appropriate variations, omissions, insertions, notations, legends or endorsements required by law or usage or permitted or required by this Agreement. The Series B Notes may be in printed or typewritten form. No Series B Notes may be issued under the provisions of this Agreement except in accordance with this Article. (b) DETAILS OF SERIES B NOTES. Each Series B Note will be dated the date of its original authentication and delivery hereunder and all Series B Notes shall mature, subject to prior redemption or repurchase, on the Maturity Date. Interest on each Series B Note shall be computed from the Interest Payment Date applicable to such Series B Note next preceding the date of authentication thereof, unless such authentication date (i) is prior to the first Interest Payment Date following the initial delivery of the Series B Notes, in which case interest shall be computed from such initial delivery date, or (ii) is an Interest Payment Date, in which case interest shall be computed from such authentication date; provided, that if interest on the Series B Notes is in default, Series B Notes shall bear interest from the last date to which interest has been paid. The principal and Purchase Price of and interest on the Series B Notes shall be payable in lawful currency of the United States of America. The principal and Purchase Price of the Series B Notes shall be payable at the principal corporate trust office of the Paying Agent upon presentation and surrender of such Series B Notes as the same shall become due and payable. Payments of interest on the Series B Notes will be mailed, except as otherwise provided herein, to the persons in whose names the Series B Notes are registered on the register of the Paying Agent at the close of business on the Record Date next preceding each Interest Payment Date, including, when a book-entry system is in effect with respect to some or all of the Series B Notes, Persons, including the Participants, who are registered as owning beneficial interests in the Series B Notes on the registration books of the Securities Depository; provided that, any Holder (or beneficial owner, if Series B Notes are held under a book-entry system) of a Series B Note or Series B Notes in an aggregate principal amount of not less than $500,000 may, by prior written instructions filed with the Paying Agent (which 10 16 instructions shall remain in effect until revoked by subsequent written instructions), instruct that interest payments for any period be made by wire transfer to an account in the continental United States or other means acceptable to the Paying Agent. Series B Notes will be numbered from 1 upward as determined by the Trustee and will contain the designation "R." SECTION 2.02. INTEREST ON THE SERIES B NOTES. The Series B Notes will bear interest as herein provided from the date thereof until paid in full. Interest accrued on each Series B Note shall be paid on the applicable Interest Payment Date therefor. The Interest Rate on the Series B Notes will be determined as provided in this Section 2.02; provided that the Interest Rate shall not exceed the Maximum Rate. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed over a year of 360 days. (a) INTEREST PERIOD AND INTEREST RATE DETERMINATION METHOD. There shall be established and reestablished for each of the Series B Notes an Interest Period, and each of the Series B Notes shall bear interest at the Interest Rate for such Series B Note during the applicable Interest Period. The Interest Period and corresponding Interest Rate for each Series B Note shall be determined by the Remarketing Agent initially no later than the first day of the Interest Period and thereafter on the first day of each succeeding Interest Period or on a Business Day selected by the Remarketing Agent not more than five Business Days prior to the first day of such succeeding Interest Period. Each Interest Period for any Series B Note shall be a period, not less than one (1) nor more than one hundred eighty (180) days, determined by the Remarketing Agent in its sole discretion to be the period which, together with all other Interest Periods for all Series B Notes then Outstanding, will result in the lowest overall interest expense on the Series B Notes over the next succeeding one hundred eighty (180) days; provided, however, that: (i) each Interest Period shall end on a day which immediately precedes a Business Day, or on the day prior to the Maturity Date; (ii) if the Remarketing Agent shall not have determined an Interest Period for any Series B Note or if for any reason an Interest Period for any Series B Note determined by the Remarketing Agent shall be held to be invalid or unenforceable by a court of law, such Interest Period shall have seven days or, if the last day of such Interest Period would fall on or after the Maturity Date, such Interest Period shall end on the day preceding the Maturity Date; (iii) no Interest Period shall extend beyond the fifth (5th) Business Day prior to the stated expiration date of the Series B Letter of Credit or Substitute Series B Letter of Credit then in effect, unless a Substitute Series B Letter of Credit, which will not result in a Credit Modification has been timely delivered and accepted by the Trustee pursuant to the terms of Section 5.03; 11 17 (iv) if, pursuant to Section 5.03(a)(iii), the Remarketing Agent has approved a Substitute Series B Letter of Credit which will result in a Credit Modification, no Interest Period commencing prior to the effective date of such Substitute Series B Letter of Credit shall extend beyond the effective date of such Substitute Series B Letter of Credit; and (v) in the event any Series B Note is purchased with the proceeds from a draw under the Series B Letter of Credit, the Interest Period for such Series B Note will be determined for successive one-day terms until such Series B Note is remarketed and released by the Bank in accordance with Section 3.08(d)(ii). In determining the number of days in each Interest Period, the Remarketing Agent shall take into account the following factors: (1) all other Interest Periods for all of the Series B Notes, (2) general economic and market conditions relevant to the Series B Notes, (3) optional redemption dates, the notice of which it has been given, (4) the date and principal amount of any mandatory sinking fund redemption pursuant to Section 3.01(b), notice of which has been provided to the Remarketing Agent by the Trustee pursuant to Section 3.01(b)(ii), and (5) such other facts, circumstances and conditions as the Remarketing Agent determines in its sole discretion to be relevant. The Interest Rate for each Interest Period for each Series B Note shall be the minimum rate of interest which, in the opinion of the Remarketing Agent, would be necessary to sell the Series B Note on such date of determination in a secondary market sale at the principal amount thereof. If the Remarketing Agent shall not have determined an Interest Rate with respect to any or all of the Series B Notes, the Interest Rate for such Series B Notes shall be identical to the immediately preceding Interest Rate for such Series B Notes. If for any reason an Interest Rate determined by the Remarketing Agent for any Interest Period shall be held to be invalid or unenforceable by a court of law, the Interest Rate for such Interest Period shall be a rate per annum equal to 125% of the rate published in the most recent edition of The Bond Buyer for 30-day prime commercial paper or, if The Bond Buyer no longer publishes such information, such other publication or provider of such information as the Remarketing Agent shall select. (b) NOTIFICATION OF INTEREST PERIOD AND INTEREST RATE; CALCULATION OF INTEREST. The Remarketing Agent will notify the Paying Agent in writing (which may be in telecopy form) or by telephone promptly confirmed in writing by 10:00 a.m. on the first Business Day of each Interest Period with respect to any Series B Note, of the identity of such Series B Note, the length of such Interest Period, the Interest Rate therefor and the principal amount of such Series B Note, and, upon the request of the Borrower or the Bank, the Paying Agent shall promptly (but in no event later than the end of such Business Day) after its receipt of such information, forward such information to the Borrower and the Bank. The failure by the Remarketing Agent or the Paying Agent, as applicable, to give any such notice shall not affect the change in the Interest Period and/or Interest Rate. 12 18 Using the Interest Rates and Interest Periods supplied by the Remarketing Agent, the Trustee will (i) calculate the amount of interest payable on the Series B Notes and (ii) take action as set forth in Section 5.02 such that timely payment of such interest is made under Section 4.02. The establishment of the Interest Rates and the Interest Periods as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders. The calculation of interest payable on the Series B Notes as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders, absent manifest error. (c) NO LIABILITY. Neither the Remarketing Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Trustee, the Paying Agent, the Placement Agent, the Bank or any Noteholder for any action taken or not taken by the Remarketing Agent or any of its directors, officers, agents or employees in connection with the determination of the Interest Period and Interest Rate for each Series B Note pursuant to this Section 2.02, in the absence of its own negligence or willful misconduct. SECTION 2.03. EXECUTION AND AUTHENTICATION. The Series B Notes will be signed on behalf of the Borrower by the manual or facsimile signatures of the President, any Executive Vice President, any Senior Vice President, any Vice President or Treasurer of the Borrower, attested by the manual or facsimile signatures of the Borrower's Secretary or Assistant Secretary, and the seals of the Borrower will be impressed or imprinted on the Series B Notes by facsimile or otherwise. If an officer of the Borrower whose signature is on a Series B Note no longer holds that office at the time the Trustee authenticates the Series B Note, the Series B Note shall nevertheless be valid. If a person signing a Series B Note is the proper officer on the actual date of execution, the Series B Note shall be valid even if that person is not the proper officer on the nominal date of action. A Series B Note shall not be valid for any purpose under this Agreement unless and until the Paying Agent manually signs the certificate of authentication on the Series B Note, and such signature shall be conclusive evidence that the Series B Note has been authenticated under this Agreement. SECTION 2.04. SERIES B NOTE REGISTER. The Paying Agent shall keep a register of Series B Notes and of their transfer and exchange. Except as otherwise provided in Section 2.07, Series B Notes must be presented at the principal corporate trust office of the Paying Agent for registration, transfer and exchange, and Series B Notes may be presented at that office for payment. 13 19 SECTION 2.05. REGISTRATION AND EXCHANGE OF SERIES B NOTES; PERSONS TREATED AS OWNERS. (a) Except as otherwise provided in Section 2.07, Series B Notes may be transferred only on the register maintained by the Paying Agent. Upon surrender for transfer of any Series B Note to the Paying Agent, duly endorsed for transfer or accompanied by an assignment duly executed by the holder or the holder's attorney duly authorized in writing and in either case, with an appropriate guarantee of signature conforming to the requirements of Exhibit A attached hereto, the Paying Agent will authenticate a new Series B Note or Series B Notes in an equal total principal amount and registered in the name or names of the transferee or transferees. Series B Notes may be exchanged for an equal total principal amount of Series B Notes of different Authorized Denominations. The Paying Agent will authenticate and deliver Series B Notes that the Noteholder making the exchange is entitled to receive, bearing numbers not then outstanding. The Paying Agent will not be required to transfer or exchange any Series B Note during the period beginning two (2) days before the mailing of notice calling the Series B Note or any portion of the Series B Note for redemption and ending on the redemption date. Series B Notes subject to redemption or mandatory purchase may be transferred or exchanged only if the Paying Agent provides the new holder thereof with a copy of the notice of redemption or mandatory purchase, as the case may be. The holder of a Series B Note as shown on the register of the Paying Agent shall be the absolute owner of the Series B Note for all purposes, and payment of principal, interest or Purchase Price shall be made only to or upon the written order of such holder or the holder's legal representative; provided that interest shall be paid to the Person shown on the register as a holder of a Series B Note on the applicable Record Date. (b) The Paying Agent may require the payment by a Noteholder requesting exchange or registration of transfer of any tax or other governmental charge required to be paid in respect of the exchange or registration of transfer but will not impose any other charge. SECTION 2.06. AUTHORIZATION OF SERIES B NOTES. (a) AUTHORIZATION OF SERIES B FACILITY AMOUNT AND ISSUANCE OF SERIES B NOTES. The Borrower hereby requests and authorizes the issuance, authentication and delivery under this Agreement of Series B Notes in the aggregate principal amount of $10,000,000, said Series B Notes to be dated April 27, 1995. The Series B Notes shall be executed substantially in the form and in the manner hereinabove set forth and shall be deposited with the Paying Agent for authentication, 14 20 but before the Series B Notes shall be delivered by the Paying Agent, there shall be filed or deposited with the Trustee the following: (1) a copy, certified by the secretary or assistant secretary of the Borrower of a resolution of the board of directors or executive committee of the board of directors of the Borrower, authorizing (I) the execution and delivery of this Agreement, (II) the execution, delivery, issuance and sale of Series B Notes in an aggregate principal amount not to exceed the Series B Facility Amount, and (III) the use by the Placement Agent and the Remarketing Agent of the Offering Memorandum; (2) the Series B Letter of Credit, in an amount not less than $10,145,833, representing the Series B Facility Amount plus 35 days' interest on such amount computed at the Maximum Rate on the basis of actual number of days elapsed in a year of 360 days; (3) an original executed counterpart of this Agreement; (4) the written opinion of Whitman Breed Abbott & Morgan, counsel to the Borrower, addressed to the Trustee, the Bank, the Placement Agent and the Remarketing Agent, to the effect that (I) the issuance of the Series B Notes has been duly authorized by the Borrower, (II) the Series B Notes have been duly executed and delivered by the Borrower, (III) this Agreement is enforceable and of binding effect against the Borrower in accordance with its terms under State law, (IV) nothing has come to their attention that would lead them to believe that the information concerning the Borrower contained in the Offering Memorandum contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, and (V) the Series B Notes are not subject to registration under the Securities Act of 1933, as amended, and otherwise in form and substance satisfactory to the Trustee and the Remarketing Agent; (5) an Opinion of Counsel to the Bank addressed to the Trustee, or upon which the Trustee may rely, to the effect that the Series B Letter of Credit is a binding and valid obligation of the Bank and is not subject to registration under the Securities Act of 1933, as amended; (6) an authorization request from the Borrower to authenticate and deliver $10,000,000 aggregate principal amount of the Series B Notes in specified Authorized Denominations to the initial purchaser or purchasers upon payment to the Placement Agent of the Purchase Price for such principal amount of Series B Notes; and (7) such other documentation, certificates and assurances as may reasonably be required by the Bank, the Paying Agent, the Remarketing Agent or the Placement Agent or their respective counsel. 15 21 When the documents referred to in paragraphs (1) through (7), inclusive, of this subsection (a) have been filed with the Trustee, the Paying Agent shall authenticate the Series B Notes issued under this subsection (a) and the Trustee shall deliver such executed and authenticated Series B Notes to the purchaser or purchasers thereof as directed by the Borrower. (b) LIMITATIONS ON THE ISSUANCE OF SERIES B NOTES. Notwithstanding any other provision of this Article II, the Paying Agent shall not authenticate and deliver Series B Notes (i) on any day on which the Trustee is to receive payment from the Bank in respect of a drawing under the Series B Letter of Credit until after the Trustee has received such payments in an amount equal to the amount of such drawing; (ii) if the issuance of such Series B Notes would, after giving effect to such issuance, cause the aggregate principal amount of all Series B Notes issued and Outstanding pursuant to this Article II to exceed the Series B Facility Amount; (iii) on or after a date which is five (5) days prior to the Maturity Date; (iv) on or after any date on which the Trustee has delivered a notice of mandatory redemption pursuant to Section 3.01(c) and until the Series B Letter of Credit is extended or a Substitute Series B Letter of Credit has been provided; (v) on any date as of which an Event of Default has occurred and is continuing and of which the Trustee has received notice or is deemed to have received notice as provided in Section 8.05; (vi) on and after the date as of which the Trustee has been notified that the Placement Agent has resigned or been removed (as provided in Section 8.12) and until a successor Placement Agent has delivered its acceptance of its appointment to the Trustee; and (vii) on and after the date as of which the Trustee has been notified that the Remarketing Agent has resigned or been removed (as provided in Section 8.10) and until a successor Remarketing Agent has delivered its acceptance of its appointment to the Trustee. Notwithstanding any other provision of this Agreement to the contrary, the Paying Agent shall not authenticate and deliver Series B Notes if prior to any proposed issuance date or by 10:00 on such date the Trustee receives a written notice from the Bank that the conditions precedent to an issuance of additional Series B Notes, as provided in Section 6.02 of the Reimbursement Agreement, have not been met. (c) SERIES B NOTE PROCEEDS. All proceeds from the sale of Series B Notes issued hereunder shall be paid on the Date of Issuance by the Placement Agent to the Paying Agent and, upon receipt thereof, the Paying Agent shall promptly pay such proceeds to or at the direction of the Borrower on such date. SECTION 2.07. BOOK-ENTRY SYSTEM; RECORDING AND TRANSFER OF OWNERSHIP OF THE SERIES B NOTES. (a) Initially, all of the Series B Notes shall be held by means of a book-entry system administered by the Securities Depository. One Series B Note certificate in registered form will be issued for the Series B Notes in the aggregate principal amount of $10,000,000, and will be registered in the name of the Securities Depository Nominee and will be deposited with the Paying Agent. Thereafter, in the event that Series B Notes are issued to the Beneficial Owners thereof in certificated (physical) form (and in each and every case thereafter in which a change in the principal amount of Series B Notes held pursuant to a 16 22 book-entry system is made), the Paying Agent will take all actions necessary to comply with the Balance Certificate Agreement. (b) With respect to any Series B Notes that are held by means of a book-entry system, such book-entry system will evidence beneficial ownership of the Series B Notes so held in Authorized Denominations (or, as applicable, positions held by the Participants, beneficial ownership being evidenced in the records of such Participants). Registration and transfers of ownership shall be effected on the records of the Securities Depository and the Participants, as applicable, pursuant to rules and procedures established by the Securities Depository and the Participants. Subject to the provisions of Section 7.09, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting. Transfer of principal, interest and Purchase Price payments to beneficial owners of the Series B Notes so held will be the responsibility of the Securities Depository and the Participants. The Borrower, the Trustee, the Bank and the Paying Agent will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by the Securities Depository, the Securities Depository Nominee or the Participants. While the Securities Depository Nominee is the owner of the Series B Notes so held, notwithstanding the provision hereinabove contained, payments of principal and Purchase Price of and interest on such Series B Notes shall be made in accordance with the terms of the Letter of Representations dated as of April 27, 1995 (the "Letter of Representations") among the Borrower, the Trustee, the Remarketing Agent and the Paying Agent (as issuing agent and paying agent thereunder) and received and accepted by the Securities Depository. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE OF OWNERSHIP IS MAINTAINED IN ACCORDANCE HEREWITH FOR ANY SERIES B NOTES, (1) THE PROVISIONS OF THIS AGREEMENT RELATING TO THE DELIVERY OF PHYSICAL SERIES B NOTES SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED WITH REGARD TO SUCH SERIES B NOTES AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM AND (2) THE PROVISIONS OF THIS AGREEMENT RELATING TO ISSUANCE, PAYMENTS OF PRINCIPAL, PURCHASE PRICE AND INTEREST, AND ESTABLISHMENT OF INTEREST RATES AND INTEREST PERIODS WITH RESPECT TO THE SERIES B NOTES SHALL BE APPLICABLE TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES B NOTES IN AUTHORIZED DENOMINATIONS TO THE SAME EXTENT AS SUCH PROVISIONS ARE APPLICABLE TO REGISTERED OWNERSHIP INTERESTS IN THE SERIES B NOTES. SECTION 2.08. MUTILATED, LOST, STOLEN, DESTROYED OR UNDELIVERED SERIES B NOTES. (a) If any Series B Note is mutilated, lost, stolen or destroyed, the Paying Agent will authenticate a new Series B Note of the same denomination , provided that, with 17 23 respect to any mutilated Series B Note, such Series B Note shall first be surrendered by the Noteholder to the Trustee at its principal corporate trust office, and with respect to any lost, stolen or destroyed Series B Note, there shall first be furnished to the Borrower, the Trustee, the Paying Agent and the Bank, evidence of such loss, theft or destruction, together with an indemnity from the Noteholder, satisfactory to them. If the Series B Note has matured and if the evidence and indemnity described above have been provided by the Noteholder, instead of issuing a duplicate Series B Note, the Paying Agent, with the consent of the Borrower, shall pay the Series B Note without requiring surrender of the Series B Note and make such requirements as the Paying Agent deems fit for its protection, including a lost instrument bond. The Borrower and the Paying Agent may charge the Noteholder their reasonable fees and expenses in this connection. (b) In the event that any Series B Note purchased pursuant to a mandatory purchase is not delivered by the holder thereof on the date such Series B Note is purchased, the Borrower shall execute (if necessary) and the Paying Agent will authenticate and deliver a new Series B Note of like aggregate principal amount as the Series B Note purchased, the Series B Note purchased shall no longer be deemed outstanding and the owner thereof shall be entitled to receive only those funds held on deposit with respect thereto, and the new Series B Note shall, for all purposes of this Agreement, be deemed to evidence the same debt as the Series B Note purchased and shall be remarketed, delivered and registered in accordance with Section 3.08. (c) Every new Series B Note issued pursuant to this Section 2.08 shall (i) constitute an additional contractual obligation of the Borrower regardless of whether, in the case of (a) above, the mutilated, lost, stolen or destroyed Series B Note and, in the case of (b) above, the Series B Note purchased, shall be enforceable at any time by anyone, and (ii) be entitled to all of the benefits of this Agreement equally and proportionately with any and all other Series B Notes issued and outstanding hereunder. (d) All Series B Notes shall be held and owned on the express condition that the foregoing provisions of this Section are exclusive with respect to the replacement or payment of mutilated, lost, stolen or destroyed Series B Notes and the replacement of any Series B Note purchased pursuant to a mandatory purchase and, to the extent permitted by law, shall preclude any and all other rights and remedies with respect to the replacement or payment of negotiable instruments or other investment securities without their surrender, notwithstanding any law or statute to the contrary now existing or enacted hereafter. SECTION 2.09. CANCELLATION OF SERIES B NOTES. All Series B Notes paid, redeemed or purchased by the Borrower, either at or before maturity, shall be delivered to the Paying Agent when such payment, redemption or purchase is made, and except as otherwise provided herein shall be cancelled. Whenever a Series B Note is delivered to the Paying Agent for cancellation (upon payment, redemption or purchase), or for transfer, exchange or replacement pursuant to Section 2.05, 2.07 or 2.08, the Paying Agent shall promptly cancel the Series B Note and prepare a certificate of destruction therefor. 18 24 END OF ARTICLE II 19 25 ARTICLE III REDEMPTION, PURCHASE AND REMARKETING SECTION 3.01. REDEMPTION OF SERIES B NOTES. (a) OPTIONAL REDEMPTION. (i) The Series B Notes are subject to redemption at the option of the Borrower, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date; provided that any such redemption in part shall be in a minimum principal amount of $100,000. (ii) For any optional redemption, the Borrower will provide written notice to the Trustee, the Paying Agent, the Bank and the Remarketing Agent stating the redemption date (consistent with Section 3.02), the principal amount of Series B Notes to be redeemed and other particulars with respect thereto as the Trustee, the Paying Agent or the Remarketing Agent deem necessary. The Borrower will give such notice not more than sixty (60) days and not less than thirty (30) Business Days prior to the redemption date. (b) MANDATORY SINKING FUND REDEMPTION. (i) The Series B Notes are subject to mandatory sinking fund redemption prior to the Maturity Date, in part, with the Series B Notes to be redeemed being selected pursuant to Section 3.03, at a redemption price equal to the principal amount thereof, on October 1, or if any such date is not a Business Day, on the next succeeding Business Day with the same force and effect, in the years and in the principal amounts indicated below:
REDEMPTION DATE PRINCIPAL (OCTOBER 1) AMOUNT ----------- ------ 1996 $500,000 1997 500,000 1998 500,000 1999 500,000 2000 800,000 2001 800,000 2002 800,000 2003 800,000 2004 800,000 2005 800,000 2006 800,000 2007 800,000 2008 800,000 2009 800,000
20 26 (ii) Not more than two hundred five (205) days nor less than one hundred ninety-five (195) days prior to any date on which the Series B Notes are subject to mandatory sinking fund redemption, the Trustee shall deliver to the Remarketing Agent written notice of such redemption date and the principal amount of Series B Notes subject to redemption on such date, which notice shall also state that (A) pursuant to Section 2.02(a), the Remarketing Agent shall take into account the date and principal amount of any sinking fund redemption in determining the number of days in each Interest Period, and (B) pursuant to Section 3.03, the Remarketing Agent shall select the Series B Notes for redemption on or before the sixtieth (60th) day prior to the sinking fund redemption date and in making such selection shall take into account the Interest Periods with respect to such Series B Notes. Not more than eighty (80) days nor less than sixty-five (65) days prior to any date on which the Series B Notes are subject to mandatory sinking fund redemption, the Trustee shall deliver to the Remarketing Agent another written notice identical to the notice described in the preceding sentence. (iii) At its option, to be exercised on or before the tenth (10th) Business Day next preceding any sinking fund redemption date, the Borrower may: (1) deliver to the Paying Agent for cancellation Series B Notes in any aggregate principal amount desired to be credited against the Borrower's sinking fund redemption obligations; or (2) instruct the Paying Agent to credit against the Borrower's sinking fund redemption obligations any Series B Notes which prior to such date have been redeemed (otherwise than through the operation of the sinking fund) and cancelled by the Paying Agent and not theretofore applied as a credit against any sinking fund redemption obligation. Each Series B Note so delivered or previously redeemed shall be credited by the Paying Agent at 100% of the principal amount thereof against the obligation of the Borrower on such sinking fund redemption dates. Any excess over such obligation shall be credited against future sinking fund redemption obligations in chronological order, and the principal amount of the Series B Notes to be redeemed by operation of the sinking fund shall be accordingly reduced. (c) MANDATORY REDEMPTION ON EXPIRATION OR TERMINATION OF SERIES B LETTER OF CREDIT WITHOUT EXTENSION OR PROVIDING A SUBSTITUTE SERIES B LETTER OF CREDIT. (i) The Series B Notes are subject to mandatory redemption in whole on the fifth (5th) Business Day prior to the stated date of expiration or termination of the Series B Letter of Credit, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date, unless by the twentieth (20th) day prior to such redemption date the Borrower provides to the Trustee, and the Trustee has accepted, (1) evidence that such Series B Letter of Credit has been extended or (2) a Substitute Series B Letter of Credit to be effective on or prior to such redemption date. 21 27 (ii) Not more than two hundred five (205) days nor less than one hundred ninety-five (195) days prior to the stated expiration date of the Series B Letter of Credit then in effect, the Trustee shall deliver to the Remarketing Agent written notice stating (A) the date on which such Series B Letter of Credit is scheduled to expire, (B) that all of the Series B Notes are subject to redemption on the fifth (5th) Business Day prior to such expiration date, and (C) that pursuant to Section 2.02(a)(iii), no Interest Period shall extend beyond the fifth (5th) Business Day prior to such expiration date, unless by the twentieth (20th) day prior to such redemption date the Trustee has received and accepted from the Borrower (1) evidence that such Series B Letter of Credit has been extended or (2) a Substitute Series B Letter of Credit to be effective on or prior to such redemption date. If the Trustee shall not have received either of the items referenced in (1) and (2) of the preceding sentence, then not more than eighty (80) days nor less than sixty-five (65) days prior to the expiration date of the Series B Letter of Credit then in effect, the Trustee shall deliver to the Remarketing Agent another written notice identical to the notice described in the preceding sentence. SECTION 3.02. REDEMPTION DATE. The redemption date for Series B Notes to be redeemed pursuant to Section 3.01(a) must be an Interest Payment Date with respect to the Series B Notes being redeemed. The redemption date for mandatory redemptions will be as specified in Section 3.01(b) or (c), as the case may be, or determined by the Trustee or the Remarketing Agent consistently with the provisions thereof. SECTION 3.03. SELECTION OF SERIES B NOTES TO BE REDEEMED. Except as otherwise provided in this Section 3.03, if fewer than all the Series B Notes are to be redeemed, the Remarketing Agent will select the Series B Notes to be redeemed by lot or such other method as it deems in its sole discretion to be fair and appropriate and shall notify the Paying Agent (which notice may be provided by telephone, immediately confirmed in writing by legible facsimile transmission, registered or certified mail, overnight express delivery, or other secure means) of the holders and denominations of Series B Notes to be redeemed; provided, however, that in selecting Series B Notes to be redeemed the Remarketing Agent shall (i) select only Series B Notes not previously called for redemption, (ii) select Bank Notes prior to any other Series B Notes, and (iii) with respect to any mandatory sinking fund redemption pursuant to Section 3.01(b), select the Series B Notes to be redeemed on or before the sixtieth (60th) day prior to the redemption date, and in making such selection take into account the duration of the Interest Periods with respect to such Series B Notes. In the event the Remarketing Agent fails to notify the Paying Agent of the Series B Notes to be redeemed on or before the ninth (9th) Business Day prior to the redemption date, the Paying Agent shall proceed to select Series B Notes for redemption from among the Outstanding Series B Notes in the chronological order in which their Purchase Dates occur, beginning with the earliest Purchase Date; provided, however, that in selecting Series B Notes to be redeemed the Paying Agent shall (i) select only Series B Notes not previously called for redemption and (ii) select Bank Notes prior to any other Series B Notes. If fewer than all Series B Notes having the same Purchase Date (selected for redemption as provided in the immediately preceding sentence) are to be redeemed, the Paying Agent shall treat each owner 22 28 of Series B Notes as the owner of one Series B Note for purposes of selection for redemption, and shall select Series B Notes for redemption by lot or such other method as it deems fair and appropriate, (1) from among the holders of less than $1,000,000 in aggregate principal amount, provided that if there are no such holders, or if, after selection from among such holders such selection has not resulted in redemption of a sufficient amount of Series B Notes, then (2) from among the holders of $1,000,000 or more in aggregate principal amount of Series B Notes. In the event the Paying Agent selects Series B Notes for redemption, the Paying Agent shall, on or before the day on which notice of redemption is mailed to the holders, give telephonic notice to the Remarketing Agent of the Series B Notes selected for redemption and the name of the holder or holders thereof. No portion of a Series B Note may be redeemed that would result in a Series B Note which is smaller than the then permitted minimum Authorized Denomination. For this purpose, the Remarketing Agent or the Paying Agent will consider each Series B Note in a denomination larger than the minimum denomination permitted by the Series B Notes at the time to be separate Series B Notes each in the minimum denomination. Provisions of this Agreement that apply to Series B Notes called for redemption also apply to portions of Series B Notes called for redemption. Notwithstanding anything to the contrary in this Agreement, there shall be no redemption of less than all of the Series B Notes if there shall have occurred and be continuing an Event of Default. SECTION 3.04. NOTICE OF REDEMPTION. The Trustee will prepare and cause the Paying Agent to send notice of each redemption to each Noteholder whose Series B Notes are being redeemed, the Borrower, the Remarketing Agent and the Bank by first-class mail at least seven (7) Business Days but not more than sixty (60) (or twenty (20), in the case of a mandatory redemption pursuant to Section 3.01(c)) days before each redemption. The notice shall identify the Series B Notes or portions thereof to be redeemed and will state (i) the type of redemption and the redemption date, (ii) the redemption price, (iii) that the Series B Notes called for redemption must be surrendered to collect the redemption price, (iv) the address of the Paying Agent at which the Series B Notes must be surrendered, (v) that interest on the Series B Notes called for redemption ceases to accrue on the redemption date, (vi) the CUSIP number of the Series B Notes called for redemption and (vii) any condition to the redemption. With respect to any Series B Notes to be redeemed which have not been presented for redemption within sixty (60) days after the redemption date, the Trustee shall prepare and cause the Paying Agent, at the expense of the Borrower, to give a second notice of redemption to the holder of any such Series B Notes which have not been presented for redemption, by first-class mail, within thirty (30) days of the end of such 60-day period. Failure by the Trustee or the Paying Agent to give any notice of redemption as to any particular Series B Notes will not affect the validity of the call for redemption of any Series B Notes in respect of which no such failure has occurred. Any notice mailed as provided in the 23 29 Series B Notes will be conclusively presumed to have been given whether or not actually received by any holder or beneficial owner. SECTION 3.05. PAYMENT OF SERIES B NOTES CALLED FOR REDEMPTION; EFFECT OF REDEMPTION. Upon surrender to the Paying Agent, Series B Notes called for redemption shall be paid as provided in this Article at the redemption price provided for in this Article, to the extent that sufficient moneys have been made available therefor to the Paying Agent by 1:45 p.m. on the redemption date pursuant to Section 5.02(a). On the date fixed for redemption, notice having been given in the manner and under the conditions hereinabove provided, the Series B Notes or portions thereof called for redemption shall be due and payable at the redemption price provided therefor, plus accrued interest to such date. On such redemption date, if moneys sufficient to pay the redemption price of the Series B Notes to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Paying Agent, interest on the Series B Notes called for redemption shall cease to accrue; such Series B Notes shall cease to be entitled to any benefits or security under this Agreement or to be deemed Outstanding; and the holders and beneficial owners of such Series B Notes shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to, but excluding, the date of redemption. Any Series B Note so redeemed shall be cancelled by the Paying Agent and shall not be reissued or remarketed. SECTION 3.06. SERIES B NOTES REDEEMED IN PART. Upon surrender of a Series B Note redeemed in part, the Paying Agent will authenticate for the holder a new Series B Note or Series B Notes equal in principal amount to the unredeemed portion of the Series B Note surrendered. SECTION 3.07. PURCHASE OF SERIES B NOTES. (a) MANDATORY PURCHASE OF SERIES B NOTES; NOTICE. Except as provided in Section 3.07(c), Series B Notes are subject to mandatory purchase at the Purchase Price: (i) on each Interest Payment Date applicable to such Series B Note; and (ii) on the effective date of any Substitute Series B Letter of Credit delivered pursuant to Section 5.03, if, but only if, such Substitute Series B Letter of Credit will result in a Credit Modification. The Trustee will prepare and cause the Paying Agent to send written notice of each mandatory purchase pursuant to Section 3.07(a)(ii) above (a "Notice of Mandatory Purchase") to each Noteholder whose Series B Notes are being purchased, the Remarketing Agent, the Bank and the Borrower at least 15 days but not more than 60 days before the Purchase Date. No Notice of Mandatory Purchase will be given to holders or beneficial owners of Series B Notes if the mandatory purchase is being made pursuant to Section 3.07(a)(i) above. Any Notice of Mandatory Purchase will be given by first-class mail and will be substantially in the form attached hereto as Exhibit B. 24 30 With respect to any Series B Notes to be purchased which have not been presented for purchase within 60 days after the Purchase Date, the Paying Agent, at the expense of the Borrower, shall prepare and give a second notice of purchase pursuant to Section 3.07(a)(ii) to the holder of any such Series B Notes which have not been presented for purchase, by first-class mail, within 30 days of the end of such 60-day period. (b) PAYMENT FOR PURCHASED SERIES B NOTES. The Purchase Price of Series B Notes to be purchased on a Purchase Date shall be paid from Remarketing Proceeds available to pay the Purchase Price of such Series B Notes and, to the extent Remarketing Proceeds are not available to pay the Purchase Price of such Series B Notes, from proceeds of a draw on the Series B Letter of Credit pursuant to Section 5.02(a)(iv). To the extent that sufficient moneys have been made available therefor to the Paying Agent or the Remarketing Agent, as applicable, by 1:45 p.m. on the Purchase Date pursuant to Sections 3.08 and 5.02, upon surrender to the Paying Agent of Series B Notes called for mandatory purchase as provided herein, the Purchase Price therefor shall be paid in immediately available funds by the Paying Agent's close of business (or, if applicable, the Remarketing Agent's close of business) on the Purchase Date. From and after the Purchase Date or, if later, the date on which such moneys are made available to the Paying Agent or the Remarketing Agent, as applicable, interest accruing on such Series B Notes shall cease to be payable to the prior holder thereof, such Series B Notes shall cease to be entitled to the benefits of this Agreement and to such extent the prior holder shall have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of such Series B Notes as provided in Section 4.03. Notwithstanding any provision to the contrary herein, for so long as the Series B Notes are held pursuant to a book-entry system maintained by DTC, payments of Purchase Price with respect to such Series B Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) LIMITATION ON TENDERS. The holders shall not be required to tender any Series B Note for purchase on a Purchase Date if on such date, following the occurrence of an Event of Default, the Trustee shall have declared the principal of and interest on the Series B Notes immediately due and payable pursuant to Section 7.02. SECTION 3.08. REMARKETING OF PURCHASED SERIES B NOTES. (a) SERIES B NOTES TO BE REMARKETED. Series B Notes purchased as provided herein will be remarketed by the Remarketing Agent as provided in this Section , except that: (i) Series B Notes purchased pursuant to a mandatory purchase and as to which the Remarketing Agent has received a notice of redemption may be remarketed before the date fixed for redemption only if the new purchaser receives, prior to purchasing such Series B Note, a notice that such Series B Note is subject to redemption on the date fixed for redemption, notwithstanding the fact that such notice of redemption may be sent to such purchaser after the time period mentioned in Section 3.04; 25 31 (ii) the Remarketing Agent shall not be required to remarket Series B Notes under this Section (A) during the continuance of an Event of Default or (B) as otherwise provided in the Remarketing Agreement; (iii) if the Remarketing Agent resigns or is removed pursuant to the terms of this Agreement and the Borrower has failed to appoint a successor in accordance with the terms of this Agreement, on and after the effective date of such resignation or removal (as provided in Section 8.10) and until a successor Remarketing Agent has delivered an acceptance of its appointment to the Trustee, the Series B Notes shall not be remarketed; and (iv) The Remarketing Agent shall not at any time remarket the Series B Notes (other than Bank Notes) to the Borrower or any Affiliate. (b) REMARKETING EFFORT. Except as provided in Section 3.08(a) above, the Remarketing Agent will use reasonable best efforts to remarket on the Purchase Date all Series B Notes purchased pursuant to Section 3.07 and, to the extent such purchased Series B Notes are not remarketed on the Purchase Date, thereafter will continue to use reasonable best efforts to remarket such purchased Series B Notes, upon the terms and subject to the conditions of the Remarketing Agreement. As early as practicable but not later than 9:00 a.m. on the Purchase Date and on each Business Day on which the Remarketing Agent has successfully remarketed Series B Notes pursuant to this Section 3.08, the Remarketing Agent will (i) notify the Trustee and the Paying Agent by telephone (promptly confirmed in writing) of (A) the amount of Remarketing Proceeds which the Remarketing Agent actually has on hand, and (B), if the Series B Notes are not being held pursuant to a book-entry system, the information to enable the Paying Agent to prepare new Series B Note certificates with respect to Series B Notes which were remarketed and (ii) (A) if the Remarketing Agent has received Remarketing Proceeds with respect to all of the Series B Notes to be remarketed on such Purchase Date, transfer such Remarketing Proceeds to the holders tendering such Series B Notes for purchase as provided in (c) below, or (B) if the Remarketing Agent has not received Remarketing Proceeds with respect to all of such Series B Notes, transfer to the Paying Agent the Remarketing Proceeds which the Remarketing Agent has received as provided in (c) below. In the event that any of the Series B Notes tendered for purchase have not been remarketed, the Trustee shall immediately notify the Borrower and the Paying Agent of the amount of such Series B Notes and shall take action as set forth in Section 5.02(a)(iv). If the Trustee shall fail to receive the notice described in the first sentence of this paragraph from the Remarketing Agent by 9:00 a.m., the Trustee shall contact the Remarketing Agent by telephone to confirm the information required in such notice and, if required, the Trustee shall take action as set forth in Section 5.02(a)(iv). (c) REMARKETING PROCEEDS. To the extent the Remarketing Agent has remarketed Series B Notes and has received Remarketing Proceeds from the purchasers thereof, the Remarketing Agent will promptly forward the Remarketing Proceeds by wire 26 32 transfer (or in such other manner as is acceptable to the Remarketing Agent) to the holders tendering such Series B Notes for purchase (or, if required pursuant to Section 3.08(b), to the Paying Agent). Except as otherwise provided below with respect to Bank Notes, until such transfer, all such Remarketing Proceeds shall be deposited in a separate, segregated account of the Remarketing Agent (or, if transferred to the Paying Agent, in a separate, segregated account of the Paying Agent) for application in accordance with the provisions of this Section 3.08, and until so applied shall be held for the benefit of the holders tendering such Series B Notes for purchase. Upon the reasonable written request of the Borrower, the Remarketing Agent (and the Paying Agent, if applicable) shall provide to the Borrower evidence that all Remarketing Proceeds have been maintained in a separate, segregated account. If within ten Business Days of the aforementioned request by Borrower, the Paying Agent cannot provide evidence that Remarketing Proceeds have been segregated, or if the Remarketing Proceeds have been commingled with other moneys, the Borrower shall be entitled, in either case, to remove the Paying Agent without obtaining the consent of the Bank or any other party. Notwithstanding any provision to the contrary herein, for so long as the Series B Notes are held pursuant to a book-entry system maintained by DTC, payments of Remarketing Proceeds with respect to such Series B Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (d) DELIVERY OF PURCHASED SERIES B NOTES. Series B Notes purchased pursuant to Section 3.07 shall be delivered as follows: (i) Series B Notes purchased with Remarketing Proceeds (other than Bank Notes) shall be delivered to the purchasers thereof upon receipt of payment therefor. Prior to such delivery the Paying Agent shall provide for registration of transfer to the Holders, as provided in a written notice from the Remarketing Agent; (ii) All Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series B Letter of Credit) will be registered in the name of the Trustee, as agent and bailee of the Bank, subject to the pledge by the Borrower to the Bank, and shall be held by the Trustee pursuant to the Reimbursement Agreement. Upon receipt of Remarketing Proceeds in respect of Bank Notes, the Remarketing Agent shall notify the Bank, the Trustee and the Borrower of such receipt. Upon its receipt of such notice, the Bank shall, pursuant to the Reimbursement Agreement, notify the Remarketing Agent and the Trustee by telephone, telecopy or telex, promptly confirmed in writing, that the Series B Notes have ceased to be Bank Notes and that the amount of the Letter of Credit has been automatically reinstated as provided therein, whereupon the Remarketing Agent will remit such Remarketing Proceeds as directed by the Bank. The Trustee shall not release the Bank Notes until it receives from the Bank the notice referred to in the preceding sentence. The Remarketing Agent shall hold such Remarketing Proceeds in a segregated account of the Remarketing Agent for the benefit of the Bank, except that if the Series B Letter of Credit is not reinstated by an amount equal to the Remarketing Proceeds, then the Remarketing Agent shall hold such funds for the benefit of the purchasers which provided such Remarketing Proceeds. END OF ARTICLE III 27 33 ARTICLE IV PAYMENT OF SERIES B NOTES AND CREATION OF SERIES B LETTER OF CREDIT FUND SECTION 4.01. PAYMENT OF SERIES B NOTES. The Paying Agent shall make payments when due of principal of and interest on Series B Notes, and the Paying Agent or the Remarketing Agent, if applicable, shall make payments when due of the Purchase Price of Series B Notes purchased pursuant to a mandatory purchase: (a) FIRST, (but only with respect to payments of Purchase Price) from Remarketing Proceeds; and (b) SECOND, (but only with respect to payments of interest on the Series B Notes) from moneys (including moneys drawn under the Series B Letter of Credit) on deposit in the Interest Reserve Account of the Series B Letter of Credit Fund; and (c) THIRD, (but only with respect to principal, or the portion of the Purchase Price corresponding to principal, on the Series B Notes) from moneys (including moneys drawn under the Series B Letter of Credit) on deposit in the Principal Account of the Series B Letter of Credit Fund; and (d) LAST, from any other moneys available to the Trustee, including, without limitation, moneys paid by the Borrower pursuant to Section 6.01. The Trustee shall transfer moneys to the Paying Agent at such times and in sufficient amounts so as to permit the Paying Agent to make such payments when due. Notwithstanding the foregoing, however, payments of Purchase Price, principal and interest on Bank Notes will be paid only from the first and last categories of moneys. The proceeds of investments of any moneys in any of these categories may be used to the same extent as the moneys invested could be used. SECTION 4.02. CREATION OF SERIES B LETTER OF CREDIT FUND. There is hereby established the Hanover Direct, Inc. Flexible Term Notes Series B Letter of Credit Fund, in which the Trustee shall establish and maintain a Series B Principal Account and a Series B Interest Reserve Account. Such fund and accounts shall be held and maintained by the Trustee and the moneys and securities therein shall be applied as hereinbefore and hereinafter provided. Except as otherwise provided in Sections 4.03(c) and 7.05, the Borrower shall have no interest whatsoever in the moneys and securities maintained by the Trustee in each said fund and accounts. 28 34 SECTION 4.03. FUNDS RECEIVED; APPLICATION OF MONEY IN SERIES B LETTER OF CREDIT FUND. (a) There shall be deposited in the Series B Letter of Credit Fund all proceeds of drawings under the Series B Letter of Credit received by the Trustee. No other funds (other than investment proceeds from moneys deposited therein) shall be deposited in or commingled with the Series B Letter of Credit Fund. All amounts received by the Trustee as proceeds of draws on the Series B Letter of Credit made pursuant to Section 5.02(a)(i) and (ii) or otherwise with respect to accrued interest on, the Series B Notes shall be deposited in the Interest Reserve Account of the Series B Letter of Credit Fund. All amounts received by the Trustee as proceeds of draws on the Series B Letter of Credit made pursuant to Section 5.02(a)(iii) and (iv) with respect to the principal amount of, or the portion of the Purchase Price representing the principal amount of, the Series B Notes shall be deposited in the Principal Account of the Series B Letter of Credit Fund. (b) To the extent that the remarketing proceeds are insufficient to pay the principal amount of, or the portion of the Purchase Price representing the principal amount of, the Series B Notes, the Borrower hereby authorizes and directs the Trustee, and the Trustee hereby agrees, to withdraw and transfer to the Paying Agent sufficient funds from (i) the Principal Account of the Series B Letter of Credit Fund to pay the principal amount of, or the portion of the Purchase Price representing the principal amount of, the Series B Notes (other than Bank Notes) as the same become due and payable, and (ii) the Interest Reserve Account of the Series B Letter of Credit Fund to pay the accrued interest on the Series B Notes (other than Bank Notes) as the same become due and payable. Except as otherwise provided in Section 4.03(c) and in Section 7.05, amounts on deposit in the Interest Reserve Account shall be used solely by the Trustee and the Paying Agent for the payment of interest on the Series B Notes and the portion of the Purchase Price representing interest on Series B Notes subject to mandatory purchase. (c) Any amounts remaining in the Series B Letter of Credit Fund and all other amounts required to be paid under this Agreement shall be paid to the Bank or, if the Bank shall certify to the Trustee in writing that no obligations remain owing to the Bank under the Reimbursement Agreement at the time of payment of the Series B Notes in full, to the Borrower. Prior to making any payment under this Section 4.03(c), the Trustee shall request, in writing, written certification from the Bank as to amounts owed by the Borrower to the Bank. The Trustee shall be entitled to receive and rely upon such certificate from the Bank as to amounts owed to the Bank and shall be entitled to retain all amounts held hereunder until receipt of such certificate. (d) All proceeds of draws on the Series B Letter of Credit received by the Trustee for the payment of principal of or interest accrued on Series B Notes that have been accelerated pursuant to Section 7.02 hereof will be deposited in the appropriate account of the Series B Letter of Credit Fund in accordance with the terms of this Section 4.03 and applied in accordance with the terms of Section 7.03. 29 35 (e) The proceeds of investments of any moneys in the Series B Letter of Credit Fund may be used to the same extent as the moneys invested could be used. No principal or Purchase Price of or interest on the Series B Notes will be paid from funds provided directly or indirectly by the Borrower or any Affiliate, except in the case of the failure by the Bank to honor a valid draw under the Series B Letter of Credit. (f) (1) Upon the reasonable written request of the Borrower, the Trustee shall provide to the Borrower evidence that all moneys in the Series B Letter of Credit Fund have been maintained in a separate and segregated account. (2) If, within ten Business Days of the request made by Borrower pursuant to Section 4.03 (f)(1) above, the Trustee cannot provide evidence that moneys in the Series B Letter of Credit Fund have been segregated, or if the moneys in the Series B Letter of Credit Fund have been commingled with other moneys, the Borrower shall be entitled, in either case, to remove the Trustee without obtaining the consent of the Bank or any other party. SECTION 4.04. MONEYS TO BE HELD IN TRUST. All proceeds of a draw on the Series B Letter of Credit received by the Trustee and all money that the Trustee or the Paying Agent shall hold in, or shall have withdrawn from, the Series B Letter of Credit Fund or shall have received from any other source and set aside for the purpose of paying any of the Series B Notes, either on the Maturity Date or by purchase (other than as provided in Section 3.08 hereof) or call for redemption or for the purpose of paying any interest on the Series B Notes, shall be held in trust for the respective holders or beneficial owners of the Series B Notes. Moneys received by the Remarketing Agent, the Paying Agent or the Trustee from the sale of a Series B Note under Section 3.08 or from the purchase of any Series B Note will be held segregated from other funds held by the Remarketing Agent, the Paying Agent or the Trustee for the benefit of the Person from whom such Series B Note was purchased and will not be invested while so held. Any money that is so set aside and that remains unclaimed by the holders or beneficial owners for a period of five (5) years after the date on which such Series B Notes have become payable shall be remitted to the Borrower and thereafter the holders and beneficial owners shall look only to the Borrower for payment and then only to the extent of the amounts so received, without any interest thereon, and the Trustee, the Placement Agent, the Remarketing Agent, the Paying Agent and the Bank shall have no responsibility with respect to such money. SECTION 4.05. INVESTMENT OF MONEYS. Except as otherwise provided herein, money held for the credit of the Series B Letter of Credit Fund shall be continuously invested and reinvested by the Trustee only in Permitted Investments in accordance with the instructions of the Borrower Representative as provided herein. Any such Permitted Investments shall mature not later than the respective dates when the money held for the credit of such funds or accounts will be required for the purposes intended. Unclaimed moneys held by the Trustee, the Paying Agent or the Remarketing Agent under Section 4.04 shall be held uninvested by the Trustee, the Paying Agent or the Remarketing Agent. 30 36 The Borrower Representative shall give to the Trustee written directions respecting the investment of any money required to be invested hereunder, subject, however, to the provisions of this Article, and the Trustee shall then invest such money under this Section as so directed by the Borrower Representative. The Trustee shall sell at the best price attainable or reduce to cash a sufficient amount of such Permitted Investments whenever it shall be necessary in order to provide money to make any payment or transfer of money from such fund. The Trustee shall not be liable or responsible for any loss resulting from any such investment. END OF ARTICLE IV 31 37 ARTICLE V SERIES B LETTER OF CREDIT SECTION 5.01. REQUIREMENTS FOR SERIES B LETTER OF CREDIT. In order to support its obligations to make payments pursuant to Section 6.01, the Borrower has agreed, upon the authentication and delivery of the Series B Notes to deliver to the Trustee the Series B Letter of Credit. For so long as any Series B Notes remain Outstanding, a Series B Letter of Credit (i) in an amount not less than the aggregate principal amount of Series B Notes Outstanding plus 35 days' interest on such amount computed at the Maximum Rate on the basis of actual number of days elapsed in a year of 360 days and (ii) otherwise with terms substantially conforming to those of the original Series B Letter of Credit, shall be in effect with respect to such Series B Notes. Any Series B Letter of Credit securing the payment of principal and Purchase Price of and interest on Series B Notes issued hereunder, shall provide for reductions in the principal component and interest component thereof upon any partial redemption of Series B Notes pursuant to this Agreement. SECTION 5.02. DRAWS ON SERIES B LETTER OF CREDIT; EXTENSIONS. (a) The Borrower hereby irrevocably authorizes and directs the Trustee to make timely draws under the Series B Letter of Credit in accordance with the terms thereof in amounts sufficient to make or provide for when due the payments referred to in Section 6.01, except with respect to Bank Notes, which are not entitled to any benefit of the Series B Letter of Credit. All moneys drawn under the Series B Letter of Credit to pay the principal of and interest on, or the Purchase Price of, the Series B Notes shall be credited immediately against the obligation of the Borrower to make payments pursuant to Section 6.01. The authorization and direction for the Trustee to draw under the Series B Letter of Credit is irrevocable prior to payment in full of the Series B Notes. Without intending to limit the foregoing, the Trustee shall: (i) On the Date of Issuance of the Series B Notes, for deposit by the Trustee in the Series B Interest Reserve Account, draw on the Series B Letter of Credit in order to obtain an amount equal to 35 days' interest on the Series B Notes being issued, calculated on the basis of actual number of days elapsed in a year of 360 days at the Maximum Rate; (ii) On the Business Day immediately preceding the first Business Day of each month while Series B Notes are Outstanding, for deposit by the Trustee in the Series B Interest Reserve Account, draw on the Series B Letter of Credit in order to obtain an amount calculated by the Trustee to be sufficient to make the moneys on deposit in the Series B Interest Reserve Account of the Series B Letter of Credit Fund on such day equal the sum of (1) the amount of accrued and unpaid interest on all Outstanding Series B Notes (other than Bank Notes) and (2) 35 days' interest on all Outstanding Series B Notes (including Bank Notes), calculated on the basis of actual number of days elapsed in a year of 360 days at the Maximum Rate; 32 38 (iii) on the Business Day immediately preceding each date on which a principal amount of the Series B Notes is due and payable (whether at maturity, by acceleration or call for redemption, but not with respect to the purchase of Series B Notes provided for in (iv) below), for deposit by the Trustee in the Series B Principal Account, draw on the Series B Letter of Credit in order to obtain an amount necessary to make full and timely payment of the principal then due; and (iv) on each Purchase Date, with respect to any Series B Notes to be purchased on such date and as to which the Trustee has received from the Remarketing Agent the notice of remarketing provided for in Section 3.08(b) (or has confirmed the information required in such notice as provided in Section 3.08(b)) and such notice (or confirmation) states that less than the aggregate amount of the Purchase Price of all Series B Notes to be purchased on such date has been received in the form of Remarketing Proceeds, draw on the Series B Letter of Credit in order to obtain an amount equal to the portion of the Purchase Price representing the principal amount of Series B Notes to be purchased on such date less the amount which has been received by the Remarketing Agent in the form of Remarketing Proceeds. The proceeds of a draw on the Series B Letter of Credit made pursuant to this paragraph (iv) shall be transferred by the Trustee to the Paying Agent for payment pursuant to Sections 3.07(b) and 4.01. If any such draws are made on a Purchase Date in connection with the delivery of a Substitute Series B Letter of Credit which results in a Credit Modification, such draws shall be made under the existing Series B Letter of Credit and not under the Substitute Series B Letter of Credit. The Trustee agrees to make all such draws so as to be able to obtain the requested funds by 1:45 p.m. on the payment date or Purchase Date, as the case may be. (b) The Trustee shall advise the Borrower by telecopy or telex on the date of each draw on the Series B Letter of Credit of the amount and date of such draw and of the reason for such draw. (c) The Series B Letter of Credit may be amended or its expiration date extended as provided therein or in this Section 5.02(c). For amendments or for extensions of the term of the Series B Letter of Credit, the Trustee shall, at the direction of the Borrower Representative, but only if required by the Bank to evidence such an amendment or extension, surrender the Series B Letter of Credit to the Bank in exchange for a new Series B Letter of Credit of the Bank or the Series B Letter of Credit with notations thereon, as the Bank may so elect, conforming in all material respects to the Series B Letter of Credit except that the expiration date shall be extended. Any such extension shall be for a period of at least one year, or if less, until the fifteenth day following the maturity date of the Series B Notes. Any such amendment or, except as otherwise provided in the Series B Letter of Credit, extension shall be in a form acceptable to the Trustee and the Remarketing Agent, and any of them may require delivery in connection therewith of such other documents, certificates, and assurances as it deems reasonably necessary. 33 39 SECTION 5.03. SUBSTITUTE SERIES B LETTER OF CREDIT. (a) (i) At any time, upon at least sixty (60) days' prior written notice to the Trustee, the Bank and the Remarketing Agent, the Borrower may, subject to the provisions of Section 5.03(a)(iii), provide for the delivery to the Trustee of a substitute letter of credit complying with the provisions of this Agreement (the "Substitute Series B Letter of Credit"). Any notice delivered pursuant to this Section 5.03(a) shall state (A) the identity of the issuer of the Substitute Series B Letter of Credit, (B) the date the Substitute Series B Letter of Credit will be effective, (C) whether the Substitute Series B Letter of Credit is expected to result in a Credit Modification, and (D) if the Substitute Series B Letter of Credit is expected to result in a Credit Modification and become effective on any day preceding the fifth (5th) Business Day prior to the stated expiration date of the Series B Letter of Credit then in effect, that to the extent provided in Section 2.02(a)(iv) no Interest Period commencing before the effective date of the Substitute Series B Letter of Credit shall extend beyond the effective date of such Substitute Series B Letter of Credit. If a Substitute Series B Letter of Credit is expected to result in a Credit Modification the Trustee shall not accept such Substitute Series B Letter of Credit without the prior written consent of the Bank. If a Series B Letter of Credit is extended or renewed pursuant to the terms thereof, such Series B Letter of Credit as extended or renewed shall not be deemed to be a Substitute Series B Letter of Credit for purposes of this Agreement or the Series B Notes. (ii) Any Substitute Series B Letter of Credit shall have an effective date which is a Business Day occurring at least five (5) Business Days prior to the stated expiration date of the Series B Letter of Credit then in effect, and a stated expiration date which is at least one year following the effective date thereof. (iii) Any Substitute Series B Letter of Credit that would result in a Credit Modification is subject to the approval of the Remarketing Agent. The Remarketing Agent shall not approve any Substitute Series B Letter of Credit that will result in a Credit Modification unless, in the sole judgment of the Remarketing Agent, the effective date of such Substitute Series B Letter of Credit will be an Interest Payment Date for all outstanding Series B Notes. (b) At least two Business Days prior to the effective date of any Substitute Series B Letter of Credit (and as a condition to the acceptance by the Trustee of such Substitute Letter of Credit) the Borrower shall deliver to the Trustee the original executed Substitute Series B Letter of Credit, together with: (i) an Opinion of Counsel addressed to the Trustee to the effect that (A) the Substitute Series B Letter of Credit is the valid and binding obligation of the issuer thereof enforceable against such issuer in accordance with its terms except insofar as its enforceability may be limited by any insolvency or similar proceedings applicable to the issuer or by proceedings affecting generally the rights of the issuer's creditors or by general equitable principles; (B) payments of principal or Purchase Price of or interest on the Series B 34 40 Notes from the proceeds of a draw on the Substitute Series B Letter of Credit will not, in the case of a bankruptcy of the Borrower or any Guarantor (as defined in the Reimbursement Agreement), constitute avoidable preferences under any applicable bankruptcy, reorganization, insolvency or other similar laws; and (C) the Substitute Series B Letter of Credit does not constitute a separate security requiring registration under any applicable federal or state securities laws. In the case of a Substitute Series B Letter of Credit issued by a branch or agency of a foreign commercial bank, there shall also be delivered an Opinion of Counsel from a firm licensed to practice law in the jurisdiction in which the head office of such bank is located, addressed to the Trustee to the effect that the Substitute Series B Letter of Credit is the valid and binding obligation of such bank, enforceable against such bank in accordance with its terms, subject to the limitations referred to in Section 5.03(b)(i)(A) above; (ii) written evidence satisfactory to the Trustee that the issuer of the Substitute Series B Letter of Credit meets the requirements for an issuer of a Series B Letter of Credit as set forth in Article I; (iii) evidence of written approval of the Remarketing Agent; and (iv) a letter from each Rating Agency then rating the Series B Notes or, in the event the Series B Notes are not then rated, other written evidence satisfactory to the Trustee, stating whether the acceptance of the Substitute Series B Letter of Credit will result in a Credit Modification. The Trustee shall accept any such Substitute Series B Letter of Credit only in accordance with the terms, and upon satisfaction of the conditions, contained in this Section and any other applicable provisions of this Agreement. In the event that acceptance of the Substitute Series B Letter of Credit results in the occurrence of a mandatory Purchase Date, the Trustee shall not terminate or surrender the Series B Letter of Credit until the Trustee shall have made such drawings thereunder, if any, as shall be required under this Agreement to provide for payment of the Purchase Price of the Series B Notes, and shall have received the proceeds of such drawing from the Bank. (c) Not more than 60 days and not less than 15 days prior to the effective date of the Substitute Series B Letter of Credit, the Trustee shall prepare and cause the Paying Agent to send, in addition to the notice required by Section 3.07(a), by registered or certified mail to each holder (with a copy to the Bank) notice of the issuance of the Substitute Series B Letter of Credit, which notice shall include (i) the identity of the issuer thereof, (ii) the date the Substitute Series B Letter of Credit will be effective, (iii) whether the Substitute Series B Letter of Credit will result in a Credit Modification and (iv) if applicable, notice pursuant to Section 3.07(a) that the Series B Notes are subject to mandatory purchase pursuant to Section 3.07. SECTION 5.04. ENFORCEMENT OF THE SERIES B LETTER OF CREDIT. The Trustee shall have the obligation to hold and maintain the Series B Letter of Credit for the benefit of the Owners 35 41 of the Series B Notes until the Series B Letter of Credit terminates or expires in accordance with its terms. When the Series B Letter of Credit terminates or expires in accordance with its terms or a Substitute Series B Letter of Credit therefor is accepted hereunder, the Trustee shall immediately surrender the Series B Letter of Credit to the Bank. The Trustee hereby agrees that, except in the case of a redemption in part pursuant to Article III hereof or any other reduction in the principal amount of Series B Notes Outstanding, it will not under any circumstances request that the Bank reduce the amount of the Series B Letter of Credit. If at any time, all Series B Notes shall cease to be Outstanding, the Trustee shall surrender the Series B Letter of Credit to the Bank, in accordance with the terms thereof. If at any time, the Bank shall fail to honor a draft presented under the Series B Letter of Credit, in conformity with the terms thereof, the Trustee shall give immediate telephonic notice thereof to the Remarketing Agent and the Borrower. END OF ARTICLE V 36 42 ARTICLE VI GENERAL COVENANTS AND REPRESENTATIONS SECTION 6.01. PAYMENT OF PRINCIPAL, INTEREST AND PREMIUM. The Borrower shall pay or cause to be paid, when due, the principal of (whether at maturity, by acceleration, by call for redemption or otherwise), the Purchase Price of and interest on the Series B Notes at the places, on the dates and in the manner provided herein and in said Series B Notes according to the true intent and meaning thereof. The obligation of the Borrower to make or cause to be made the payments on the Series B Notes and under this Agreement is absolute and unconditional. SECTION 6.02. COVENANT TO PERFORM AND REPRESENTATIONS AND WARRANTIES OF THE BORROWER AS TO AUTHORITY, ETC. (a) The Borrower shall faithfully perform at all times all of its covenants, undertakings and agreements contained in this Agreement and in any Series B Note executed, authenticated and delivered hereunder. (b) The Borrower represents and warrants that: (i) it has full corporate power and authority to execute and deliver this Agreement and to issue the Series B Notes authorized hereby and to consummate the transactions contemplated hereby and thereby; (ii) the execution and delivery of this Agreement and the issuance of the Series B Notes authorized hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the board of directors or executive committee of the board of directors of the Borrower and no other action or proceeding on the part of the Borrower is necessary to authorize this Agreement, to issue the Series B Notes or to consummate the transactions contemplated hereby or thereby; (iii) the execution, delivery and performance of this Agreement by the Borrower, the issuance of the Series B Notes authorized hereby and the consummation by the Borrower of the transactions contemplated hereby and thereby will not (with or without the giving of notice or the lapse of time or both) (A) violate or result in any default under any provision of the Certificate of Incorporation or bylaws of the Borrower; (B) violate or require any consent or approval under any provision of any law, order, injunction, rule or regulation applicable to the Borrower; (C) require any consent or approval under, result in the breach of any provision of or constitute a default under, or otherwise violate the terms of any material agreements, indentures or instruments or obligations to which the Borrower is a party or by which the Borrower may be bound or affected; or 37 43 (D) require any consent or approval by, notice to or registration with any governmental authority; and (iv) this Agreement and the Series B Notes authorized hereby have been duly and validly executed and delivered by the Borrower and constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. SECTION 6.03. FURTHER INSTRUMENTS AND ACTIONS. At the request of the Trustee, the Borrower shall execute and deliver such further instruments or take such further actions as may be reasonably required to carry out the purposes of this Agreement. SECTION 6.04. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. (a) Each of the Borrower's representations and warranties contained in the Reimbursement Agreement and the Placement Agreement are true and correct in all material respects on and as of the date hereof and are hereby made to the Trustee as if set forth herein. (b) The Borrower shall at all times comply, in all material respects, with the terms, conditions and covenants of the Reimbursement Agreement and the other Series B Note Documents. END OF ARTICLE VI 38 44 ARTICLE VII DEFAULTS AND REMEDIES SECTION 7.01. EVENTS OF DEFAULT. Each of the following events shall be an Event of Default: (a) Default in the due and punctual payment of any interest on any Series B Note; (b) Default in the due and punctual payment of the principal or Purchase Price of any Series B Note (whether at maturity, by acceleration or redemption, upon the Purchase Date or otherwise); (c) Default in the observance or performance of any other of the covenants, conditions or agreements on the part of the Borrower under this Agreement and such default shall continue for thirty (30) days (or such further time as may be granted in writing by the Trustee, with the consent of the Bank) after receipt by the Borrower Representative of a written notice from the Trustee or the Bank specifying such default and requiring the same to be remedied; or (d) Receipt by the Trustee of notice from the Bank that an Event of Default has occurred under the Reimbursement Agreement accompanied by a demand by the Bank that the Trustee declare the Series B Notes to be immediately due and payable. SECTION 7.02. ACCELERATION AND DUTY TO DRAW ON SERIES B LETTER OF CREDIT. (a) Upon the occurrence of an Event of Default under Section 7.01(a), (b) or (d) hereof, the Trustee shall, by notice to the Borrower, the Bank, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent, declare the entire unpaid principal of and interest on the Series B Notes immediately due and payable and, thereupon, the entire unpaid principal of and interest on the Series B Notes shall forthwith become immediately due and payable. (b) Upon the occurrence of any Event of Default specified in Section 7.01(c), the Trustee shall notify the Bank of such Event of Default and shall, by notice to the Borrower, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent declare the entire unpaid principal of and interest on the Series B Notes immediately due and payable, but only if directed to do so by the Bank, unless the Bank has dishonored a valid draw under the Series B Letter of Credit, in which event the Trustee may declare the entire unpaid principal of and interest on the Series B Notes immediately due and payable and, thereupon, in either case, the entire unpaid principal of and interest on the Series B Notes shall forthwith become due and payable. 39 45 (c) In the event the Trustee fails to accelerate as required by this Section 7.02(a), the owners of a majority in aggregate principal amount of Series B Notes Outstanding shall have the right to take such action. (d) Upon the acceleration of the maturity of the Series B Notes, by declaration or otherwise, the Trustee shall immediately draw upon the Series B Letter of Credit for the aggregate unpaid principal amount of the Series B Notes and all interest accrued thereon which shall be applied immediately as set forth in Section 7.03. Upon such acceleration, interest on the Series B Notes shall cease to accrue as of the date of declaration of such acceleration. SECTION 7.03. DISPOSITION OF AMOUNTS DRAWN ON SERIES B LETTER OF CREDIT. All amounts drawn on the Series B Letter of Credit by the Trustee in accordance with Section 7.02(b) shall be held by the Trustee in the Series B Letter of Credit Fund (and invested in accordance with Section 4.05), and, together with moneys on deposit in the Interest Reserve Account of the Series B Letter of Credit Fund which have been previously drawn on the Series B Letter of Credit pursuant to Section 5.02(a)(i) and (ii), shall be applied immediately to the payment of principal of and interest accrued on the Series B Notes unless, prior to or with the proceeds of the draw on the Series B Letter of Credit, the Trustee receives written instructions from the Bank to use such proceeds, together with the moneys on deposit in the Interest Reserve Account of the Series B Letter of Credit Fund, to purchase all Series B Notes. If such instructions are received by the Trustee, such draw proceeds and, if necessary, the moneys on deposit in the Interest Reserve Account, shall be immediately applied to the purchase of the Series B Notes, the acceleration of the Series B Notes shall be cancelled, the Series B Notes shall become Bank Notes and the Series B Notes shall be registered in the name of the Trustee, as agent and bailee of the Bank, and pledged under the Reimbursement Agreement as additional security for repayment of the Borrower's reimbursement obligations under the Reimbursement Agreement. Thereafter, such Series B Notes shall not be remarketed by the Remarketing Agent unless the Series B Letter of Credit is reinstated or a Substitute Series B Letter of Credit is delivered to the Trustee pursuant to Section 5.03. SECTION 7.04. NO REMEDY EXCLUSIVE. Subject to the limitations imposed on the Trustee's ability to act without the consent of the Bank, no remedy conferred by this Agreement upon or reserved to the Trustee or to the Bank is intended to be exclusive of any other remedy, but each such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bank hereunder or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. 40 46 No waiver of any default or Event of Default hereunder, whether by the Trustee pursuant to Section 7.06 or by the Noteholders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. SECTION 7.05. APPLICATION OF MONEYS. All amounts received by the Trustee from a draw upon the Series B Letter of Credit shall be applied exclusively to the payment of principal of and interest on the Series B Notes or the Purchase Price thereof as herein provided; provided, however, that whenever all principal and Purchase Price of and interest on all Series B Notes have been paid under the provisions of this Section and the Series B Note Facility has been terminated and all expenses and charges of the Trustee have been paid, and all obligations of the Borrower to the Bank pursuant to the Reimbursement Agreement shall have been paid in full, the balance remaining in the Series B Letter of Credit Fund shall be paid to the Borrower as provided in Section 4.03. SECTION 7.06. WAIVERS OF EVENTS OF DEFAULT. The Trustee, with the written consent of the Bank, may waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal of and interest on the Series B Notes, and shall do so, with the consent of the Bank, upon the written request of the holders of a majority in aggregate principal amount of Series B Notes then Outstanding; provided, however, that: (a) there shall not be waived without the consent of the holders of all Series B Notes then outstanding: (i) any default in the payment when due of the principal or Purchase Price of any Outstanding Series B Notes (whether at maturity or by mandatory or optional redemption), or (ii) any default in the payment when due of the interest on any such Series B Notes unless, prior to such waiver or rescission: (1) there shall have been paid or provided for all arrears of interest at the rate borne by the Series B Notes on overdue installments of principal, all arrears of payments of principal and Purchase Price when due and all expenses of the Trustee in connection with such default, and (2) in case of any such waiver or rescission, or in case of the discontinuance, abandonment or adverse determination of any proceeding taken by the Trustee on account of any such default, the Trustee and the Noteholders shall be restored to their respective former positions and rights hereunder; and (b) unless the Series B Letter of Credit is reinstated in full as evidenced in writing by the Bank as to principal and interest, there shall be no waiver or rescission if the Series B Letter of Credit shall have been drawn upon due to the occurrence of an Event of Default. 41 47 No such waiver or rescission shall extend to any subsequent or other default or Event of Default, or impair any right consequent thereon. SECTION 7.07. UNCONDITIONAL RIGHT TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST. Except as otherwise provided in Section 7.09 nothing in this Agreement shall, however, affect or impair the right of any Noteholder to enforce, by action at law, payment of the principal or Purchase Price of or interest on any Series B Note at and after the maturity thereof, or on the date fixed for redemption or purchase or (subject to the provisions of Section 7.02) on the same being declared due prior to maturity as herein provided, or the obligation of the Borrower to pay the principal or Purchase Price of and interest on each of the Series B Notes issued hereunder to the respective holders thereof at the time, place and in the manner herein and in the Series B Notes expressed. SECTION 7.08. [RESERVED.] SECTION 7.09. BANK DEEMED HOLDER. For all purposes of this Article VII (other than receipt of payments), the Bank shall, so long as the Series B Letter of Credit shall not have been dishonored (other than for failure to receive a drawing in strict compliance with the terms thereof or other reason permitted by the Series B Letter of Credit), be deemed the holder and registered owner of all Series B Notes. As such, the Bank may take all actions permitted by this Article VII to be taken by the holders or registered owners of the Series B Notes, to the exclusion of the actual beneficial owners and registered owners of the Series B Notes. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY HEREIN, ON OR AFTER THE EFFECTIVE DATE OF A SUBSTITUTE SERIES B LETTER OF CREDIT WHICH RESULTS IN A CREDIT MODIFICATION, THE BANK, AS ISSUER OF THE SERIES B LETTER OF CREDIT REPLACED BY SUCH SUBSTITUTE SERIES B LETTER OF CREDIT, SHALL BE DEEMED TO BE THE "BANK" HEREUNDER FOR PURPOSES OF GIVING NOTICE OF DEFAULT UNDER SECTION 7.01(d) AND FOR PURPOSES OF EXERCISING REMEDIES HEREUNDER, BUT ONLY SO LONG AS (i) OBLIGATIONS REMAIN OWING TO THE BANK UNDER THE REIMBURSEMENT AGREEMENT OR THE LOAN DOCUMENTS (AS DEFINED IN THE REIMBURSEMENT AGREEMENT) OR (ii) THERE REMAIN OUTSTANDING HEREUNDER ANY BANK NOTES PLEDGED TO THE BANK UNDER THE REIMBURSEMENT AGREEMENT. END OF ARTICLE VII 42 48 ARTICLE VIII TRUSTEE, REMARKETING AGENT, PLACEMENT AGENT AND PAYING AGENT SECTION 8.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise its rights and powers and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in this Agreement and no others and no implied covenants or obligations shall be read into this Agreement against the Trustee, and (ii) in the absence of bad faith, gross negligence or willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Agreement. However, the Trustee shall examine the certificates and opinions to determine whether they conform to the requirements of this Agreement. (c) The Trustee may not be relieved from liability for its own grossly negligent action, its own grossly negligent failure to act or its own willful misconduct, except that: (i) this paragraph does not limit the effect of (b) above; and (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was grossly negligent in ascertaining the pertinent facts. (d) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense, but the Trustee may not require indemnity as a condition to declaring the principal of and interest on the Series B Notes to be due immediately under Section 7.02 or to drawing on the Series B Letter of Credit or to taking action under the Series B Letter of Credit or in making payment of the principal of, interest on and Purchase Price of Series B Notes when due. 43 49 (e) The Trustee shall not be liable for interest on any cash held by it except as the Trustee may agree with the Borrower. (f) The Trustee shall strictly comply with the terms of the Series B Letter of Credit. (g) The Trustee shall maintain adequate records pertaining to the funds in the Series B Letter of Credit Fund, the investment thereof and the disbursement therefrom; notwithstanding anything to the contrary in this Agreement, the Trustee shall not be required to advance its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder. (h) Every provision of this Agreement that in any way relates to the Trustee is subject to all the foregoing paragraphs of this Section. (i) The Trustee shall in no event be responsible for ensuring that the rate of interest due and payable on the Series B Notes under this Agreement does not exceed the highest legal rate of interest permissible under federal or state law applicable thereto. SECTION 8.02. RIGHTS OF TRUSTEE. (a) Subject to the foregoing Section, including, but not limited to, Section 8.01(b)(ii) and 8.01(c), the Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. Any action taken by the Trustee pursuant to this Agreement upon the request or authority or consent of any person, who at the time of making such request or authority or consent is the owner of any Series B Note, shall be conclusive and binding upon all future owners of any Series B Note issued in replacement thereof. (b) Before the Trustee acts or refrains from acting, it may require a certificate of an appropriate officer or officers of the Borrower or an Opinion of Counsel stating that (i) the person making such certificate or opinion has read such covenant or condition; (ii) the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. The Trustee shall not be liable for any loss or damage or action it takes or omits to take in good faith in reliance on the certificate or Opinion of Counsel. (c) Subject to the consent of the Borrower, the Trustee may execute any of its powers hereunder and perform any of its duties through agents, attorneys or employees or 44 50 co-Trustees and shall not be responsible for the misconduct or negligence of any agent, attorney, employee or co-Trustee appointed with due care. SECTION 8.03. INDIVIDUAL RIGHTS OF TRUSTEE, ETC. The Trustee in its individual or any other capacity may become the owner, Trustee or pledgee of Series B Notes and may otherwise deal with the Bank or with the Borrower or its affiliates with the same rights it would have if it were not Trustee. SECTION 8.04. TRUSTEE'S DISCLAIMER. Subject to Sections 8.01(b) and 8.01(c): (a) the Trustee makes no representation as to the validity or adequacy of this Agreement or the Series B Notes and it shall not be accountable for the Borrower's use of the proceeds from the Series B Notes paid to the Borrower; (b) the Trustee shall not be responsible for the application of any of the proceeds of the Series B Notes or any other moneys deposited with it and paid out, withdrawn or transferred hereunder if such application, payment, withdrawal or transfer shall be made in accordance with the provisions of this Agreement. SECTION 8.05. NOTICE OF DEFAULTS. The Trustee shall not be required to take notice, or be deemed to have notice, of any default or Event of Default under this Agreement, other than an Event of Default under Section 7.01(a), (b) or (d), unless specifically notified in writing at such address as set forth in Section 10.01 hereof of such default or Event of Default by Noteholders of at least 25% in principal amount of the Series B Notes then Outstanding, by the Bank, by the Remarketing Agent or by the Borrower. If an event occurs which with the giving of notice or lapse of time or both would be an Event of Default, and if the event is continuing and if the Trustee has actual notice or is deemed to have notice thereof as herein provided, the Trustee shall cause the Paying Agent to mail to each Noteholder, the Remarketing Agent and the Bank notice of the event upon such occurrence. SECTION 8.06. COMPENSATION AND INDEMNIFICATION OF TRUSTEE. For acting under this Agreement, the Trustee shall be entitled to compensation by the Borrower of reasonable fees for the Trustee's services and reimbursement of advances, counsel fees and other expenses reasonably and necessarily made or incurred by the Trustee in connection with its services under this Agreement. The Trustee shall be indemnified by the Borrower for, and shall be held harmless against, any loss, liability or expense incurred without negligence, willful misconduct or bad faith on the Trustee's part, arising out of or in connection with the acceptance or administration of the exercise or performance of any of its powers or duties hereunder. SECTION 8.07. ELIGIBILITY OF TRUSTEE. This Agreement shall always have a Trustee that meets the qualifications set forth in this Section 8.07. The Trustee shall: (i) be a corporation or national banking association duly organized under the laws of the United States 45 51 of America or any state or territory thereof, doing business and having an office in such location as shall be approved by the Remarketing Agent, (ii) have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition, (iii) either have senior long-term debt securities rated "Baa3/P-3" or better by Moody's Investors Service, Inc. or "BBB-/A3" by Standard & Poor's Ratings Group or be a direct or indirect subsidiary of a bank or bank holding company which has senior long-term debt securities rated Baa3/P-3 or better by Moody's Investors Service, Inc. or BBB-/A3 by Standard & Poor's Ratings Group and (iv) be authorized by law to perform all the duties imposed upon it by this Agreement. SECTION 8.08. REPLACEMENT OF TRUSTEE. The Trustee may resign and be discharged of the duties and obligations created by this Agreement by notifying the Borrower, the Paying Agent, the Bank and the Remarketing Agent; provided, however, that no such resignation shall become effective until the appointment of a successor Trustee, as hereinafter provided. The holders of not less than a majority in principal amount of the Series B Notes may remove the Trustee by notifying the removed Trustee and may appoint a successor Trustee with the Borrower's, the Bank's, the Paying Agent's and the Remarketing Agent's prior written consent; provided, however, that no such removal shall become effective until the appointment of a successor Trustee, as hereinafter provided. Except upon the occurrence and during the continuance of an Event of Default hereunder, the Borrower may remove the Trustee, but (except to the extent otherwise provided herein) only after obtaining the prior written consent of the Bank and giving written notice thereof to the Paying Agent, the Remarketing Agent and the Bank by first-class mail, postage prepaid; provided, however, that no such removal shall become effective until the appointment of a successor Trustee, as hereinafter provided. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Borrower, with the prior written consent of the Paying Agent, the Bank and the Remarketing Agent shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Borrower, the Paying Agent, the Bank and the Remarketing Agent. Immediately thereafter, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall then (but only then) become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Agreement. The successor Trustee shall notify the holders of the Series B Notes of its acceptance of the duties and obligations hereunder in writing by first-class mail promptly following such acceptance. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Borrower, the Paying Agent, the Bank or the holders of a majority in principal amount of the Series B Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. 46 52 If the Trustee fails to comply with Section 8.07, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. SECTION 8.09. DUTIES OF REMARKETING AGENT. (a) The Remarketing Agent will, in accordance with the Remarketing Agreement, establish the Interest Periods and corresponding Interest Rates for the Series B Notes and perform the other duties provided for to be done by it in this Agreement and the Remarketing Agreement. (b) Subject to the consent of the Borrower, the Remarketing Agent may execute and perform any of its duties hereunder through agents, attorneys, employees or co-remarketing agents and shall not be responsible for the misconduct or negligence of any agent, attorney, employee or co-remarketing agent appointed with due care. SECTION 8.10. ELIGIBILITY OF REMARKETING AGENT; REPLACEMENT. The Remarketing Agent will be (i) a member of the National Association of Securities Dealers, Inc. having excess net capital (as defined in Rule 15c3-1 of the Securities Exchange Act of 1934, as amended) of at least $25,000,000 or, in the alternative, a national banking association having a combined capital stock, surplus and undivided profits of at least $100,000,000, (ii) a participant of the Securities Depository (but only if DTC is Securities Depository hereunder), and (iii) if the Series B Notes are rated by a Rating Agency, rated at least Baa3/P-3 or otherwise be acceptable to the Rating Agency. NationsBank, N.A. (Carolinas) is hereby appointed as the initial Remarketing Agent and is herein referred to as the "Remarketing Agent." Any Remarketing Agent shall accept its appointment hereunder in writing. The Remarketing Agent may resign by notifying the Borrower, the Trustee, the Paying Agent and the Bank at least 45 days before the effective date of the resignation. The Borrower may at any time remove the Remarketing Agent and appoint a successor by notifying the Remarketing Agent, the Bank, the Paying Agent and the Trustee at least 60 days prior to the effective date of such removal. Upon the receipt or giving, as the case may be, of notice of the resignation or the removal of the Remarketing Agent, the Borrower shall appoint a successor by notifying the Remarketing Agent, the Bank, the Paying Agent and the Trustee. If the Remarketing Agent gives notice of its resignation or notice is given of its removal pursuant to the terms of this Agreement and, after 45 days in the case of notice of resignation or 60 days in the case of notice of removal, the Borrower has failed to appoint a successor in accordance with the terms of this Agreement, such resignation or removal shall take effect immediately and, as provided in Section 3.08(a)(iii), the Series B Notes shall not be remarketed until a successor Remarketing Agent has delivered an acceptance of its appointment to the Trustee. Notwithstanding the foregoing, with the consent of the Borrower and with prior written notice to (but without the consent of) , the Trustee, the Bank, the Paying Agent and 47 53 the Noteholders, NationsBank, N.A. (Carolinas) may assign or transfer any or all of its rights and obligations hereunder and under the Remarketing Agreement to any other direct or indirect, wholly-owned subsidiary of NationsBank Corporation so long as such subsidiary meets the qualifications for a Remarketing Agent set forth herein and is otherwise permitted to perform such obligations under all applicable federal and state banking and securities laws, rules and regulations. SECTION 8.11. DUTIES OF PLACEMENT AGENT. (a) The Placement Agent will, in accordance with the Placement Agreement, arrange to place the Series B Notes with qualified investors and perform the other duties provided for to be done by it in this Agreement and the Placement Agreement. (b) Subject to the consent of the Borrower, the Placement Agent may execute and perform any of its duties hereunder through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (c) Upon the issuance of the Series B Notes hereunder, the Placement Agent shall assist the Borrower in obtaining from Standard & Poor's Ratings Group a long-term and a short-term rating on the Series B Notes, which ratings shall be equivalent to the long-term and short-term ratings of the Bank. The Borrower hereby agrees to pay (or, to the extent incurred directly by the Placement Agent, reimburse the Placement Agent for) all fees, costs and expenses incurred in connection with obtaining and maintaining such ratings. SECTION 8.12. ELIGIBILITY OF PLACEMENT AGENT; REPLACEMENT. The Placement Agent will be (i) a member of the National Association of Securities Dealers, Inc. having a capitalization of at least $25,000,000 or, in the alternative, a national banking association having a combined capital stock, surplus and undivided profits of at least $100,000,000, (ii) if the Series B Notes are rated by a Rating Agency, rated at least Baa3/P-3 or otherwise be acceptable to the Rating Agency and (iii) otherwise satisfactory to the Bank, the Remarketing Agent and the Trustee. NationsBank, N.A. (Carolinas) is hereby appointed as the initial Placement Agent. Any Placement Agent shall accept its appointment hereunder in writing. The Placement Agent may resign by notifying the Borrower, the Remarketing Agent, the Trustee, the Paying Agent and the Bank at least 45 days before the effective date of the resignation. The Borrower may at any time remove the Placement Agent and appoint a successor by notifying the Placement Agent, the Remarketing Agent, the Bank, the Paying Agent and the Trustee at least 60 days prior to the effective date of such removal. Upon the resignation or removal of the Placement Agent, the Borrower shall appoint a successor by notifying the Placement Agent, the Bank, the Remarketing Agent, the Paying Agent and the Trustee. If the Placement agent resigns or is removed pursuant to the terms of this Agreement and, after 45 days in the case of resignation or 60 days in the case of removal, the Borrower has failed to appoint a 48 54 successor in accordance with the terms of this Agreement, such resignation or removal shall take effect immediately. Notwithstanding the foregoing, with the consent of the Borrower and with prior written notice to (but without the consent of) , the Trustee, the Bank, the Remarketing Agent, the Paying Agent and the Noteholders, NationsBank, N.A. (Carolinas) may assign or transfer any or all of its rights and obligations hereunder and under the Placement Agreement to any other direct or indirect, wholly-owned subsidiary of NationsBank Corporation so long as such subsidiary meets the qualifications for a Placement Agent set forth herein and is otherwise permitted to perform such obligations under all applicable federal and state banking and securities laws, rules and regulations. SECTION 8.13. APPOINTMENT OF AND DUTIES OF PAYING AGENT. Norwest Bank Minnesota, N.A. is hereby appointed the Paying Agent under this Agreement. The Paying Agent, by its execution hereof, hereby accepts all duties and obligations imposed upon it under this Agreement. The Paying Agent shall designate to the Trustee its principal office for purposes hereof, which shall be the office of the Paying Agent at which all notices and other communications in connection herewith may be delivered to it. Any successor Paying Agent, by written instrument delivered to the Trustee, the Borrower, the Bank and the Remarketing Agent, shall accept the duties and obligations imposed upon it under this Agreement. The Paying Agent shall not be liable in connection with its duties hereunder except for its own willful misconduct, negligence or bad faith. The Paying Agent hereby agrees to make payments of principal and Purchase Price of and interest on the Series B Notes and perform its other duties and obligations all as more fully set forth herein and to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Borrower, the Bank, the Remarketing Agent and the Trustee at all reasonable times. SECTION 8.14. QUALIFICATIONS OF PAYING AGENT; REPLACEMENT OF PAYING AGENT . Any successor Paying Agent shall be a banking association or corporation duly organized under the laws of the United States of America or any state or territory thereof and authorized by law to perform all the duties imposed upon it by this Agreement. The Paying Agent may resign and be discharged of the duties and obligations created by this Agreement by notifying the Borrower, the Trustee, the Bank and the Remarketing Agent; provided, however, that no such resignation shall become effective until the appointment of a successor Paying Agent, as hereinafter provided. The holders of not less than a majority in principal amount of the Series B Notes may remove the Paying Agent by notifying the removed Paying Agent and may appoint a successor Paying Agent with the Borrower's, the Bank's, the Trustee's and the Remarketing Agent's prior written consent; provided, however, that no such removal shall become effective until the appointment of a successor Paying Agent, as hereinafter provided. Except upon the occurrence and during the continuance of an Event of Default hereunder, the Borrower may remove the Paying Agent, but (except to the extent otherwise provided herein) only after obtaining the prior written consent of the Bank and giving written notice thereof to the Trustee, the Remarketing Agent and the Bank by first-class mail, postage prepaid; provided, however, that no such removal shall become effective until the appointment of a successor Paying Agent, as hereinafter provided. 49 55 If the Paying Agent resigns or is removed or if a vacancy exists in the office of Paying Agent for any reason, the Borrower, with the prior written consent of the Trustee, the Bank and the Remarketing Agent shall promptly appoint a successor Paying Agent. A successor Paying Agent shall deliver a written acceptance of its appointment to the retiring Paying Agent and to the Borrower, the Trustee, the Bank and the Remarketing Agent. Immediately thereafter, the retiring Paying Agent shall transfer all property held by it as Paying Agent to the successor Paying Agent, the resignation or removal of the retiring Paying Agent shall then (but only then) become effective, and the successor Paying Agent shall have all the rights, powers and duties of the Paying Agent under this Agreement. The successor Paying Agent shall notify the holders of the Series B Notes of its acceptance of the duties and obligations hereunder in writing by first-class mail promptly following such acceptance. If a successor Paying Agent does not take office within 60 days after the retiring Paying Agent resigns or is removed, the retiring Paying Agent, the Borrower, the Trustee, the Bank or the holders of a majority in principal amount of the Series B Notes may petition any court of competent jurisdiction for the appointment of a successor Paying Agent. If the Paying Agent fails to comply with this Section 8.14, any Noteholder may petition any court of competent jurisdiction for the removal of the Paying Agent and the appointment of a successor Paying Agent. SECTION 8.15. SUCCESSOR TRUSTEE, PAYING AGENT OR REMARKETING AGENT BY MERGER. If the Trustee, Paying Agent or Remarketing Agent consolidates with, merges or converts into, or transfers all or substantially all its assets (or, in the case of a bank or trust company, its corporate trust assets) to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee, Paying Agent or Remarketing Agent, provided that such corporation or national banking association shall otherwise be eligible to serve in such capacity under this Agreement. SECTION 8.16. TRUSTEE'S COVENANT AS TO BANK NOTES. The Trustee shall register all Series B Notes (or beneficial interests in Series B Notes) which constitute Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series B Letter of Credit) in its name as provided in Section 3.08(d)(ii) and shall hold such Bank Notes as agent and bailee of the Bank subject to and in accordance with the terms of this Agreement and the Reimbursement Agreement. SECTION 8.17. TRUSTEE AND PAYING AGENT AS ONE ENTITY. Notwithstanding any provision to the contrary in this Agreement, including, without limitation, Sections 8.08 and 8.14, except as otherwise provided in this Section 8.17, the Trustee and the Paying Agent shall be and shall remain, at all times and for all purposes hereunder, one and the same entity, and (a) in the event that the Trustee shall resign or be removed pursuant to the terms of 50 56 Section 8.08, the Paying Agent shall be deemed simultaneously to have resigned or to have been removed, as applicable, pursuant to Section 8.14, and (b) in the event that the Paying Agent shall resign or be removed pursuant to the terms of Section 8.14, the Trustee shall be deemed simultaneously to have resigned or to have been removed, as applicable, pursuant to Section 8.08; provided, however, that more than one entity may serve as Trustee and Paying Agent hereunder if the Borrower, the Remarketing Agent and each such entity shall expressly consent in writing to such arrangement. END OF ARTICLE VIII 51 57 ARTICLE IX AMENDMENTS OF AGREEMENT SECTION 9.01. WITHOUT CONSENT OF NOTEHOLDERS. The Borrower ,the Trustee and the Paying Agent may amend or supplement this Agreement or the Series B Notes without prior notice to or consent of any Noteholder: (a) to cure any ambiguity, inconsistency or formal defect or omission; (b) to grant to the Trustee for the benefit of the Noteholders additional rights, remedies, powers or authority; (c) to modify this Agreement or the Series B Notes to permit qualification under the Trust Indenture Act of 1939, as amended, or any similar federal statute at the time in effect; to permit the qualification of the Series B Notes for sale under the securities laws of any state of the United States; or to prevent the application of the Investment Company Act of 1940, as amended, to any of the transactions contemplated by, or any of the parties to this Agreement or the Series B Notes; (d) to provide for uncertificated Series B Notes or to make any change necessary to give effect to a book-entry system pursuant to Section 2.07; (e) to evidence the succession of a new Trustee or the appointment by the Trustee of a co-Trustee; (f) to make any change not materially adversely affecting any Noteholder's rights requested by each Rating Agency then rating the Series B Notes in order (i) to obtain a rating from each such Rating Agency after the initial issuance of the Series B Notes if the Series B Notes are initially issued without a rating equivalent to the rating assigned to other securities supported by a Series B Letter of Credit of the Bank or (ii) to maintain any rating on the Series B Notes; (g) to make any change not materially adversely affecting any Noteholder's rights to provide for or to implement the provisions of a Series B Letter of Credit or a Substitute Series B Letter of Credit; (h) to make any change to provide for or to implement the provisions of a Series B Letter of Credit or a Substitute Series B Letter of Credit only if such Series B Letter of Credit or Substitute Series B Letter of Credit and the changes to this Agreement become effective on a Purchase Date applicable to all of the Series B Notes; (i) to make any change that does not materially adversely affect the rights of any Noteholder; or 52 58 (j) to add to this Agreement the obligation of the Trustee or the Borrower to disclose such information regarding the Series B Notes, the Project, the Borrower or the Bank as shall be required or recommended to be disclosed in accordance with applicable regulations or guidelines established by, among others, the American Bankers Association Corporate Trust Committee. SECTION 9.02. WITH CONSENT OF NOTEHOLDERS. If an amendment of either this Agreement or the Series B Notes is permitted by the preceding Section , the Borrower, the Trustee and the Paying Agent may enter into such amendment, without prior notice to any Noteholders; provided, however, that if the Trustee determines in its sole discretion that such amendment materially adversely affects the Owners, then prior to entering into such an amendment, the Borrower and the Trustee shall obtain the consent of the holders of at least a majority in principal amount of the Series B Notes then Outstanding. Without the consent of all Noteholders affected, however, no amendment or supplement may (a) extend the final stated maturity of any Series B Note, (b) reduce the principal amount of, or Interest Rate on (prior to its Purchase Date), any Series B Note or change the terms of any redemption or mandatory purchase thereof, (c) effect a privilege or priority of any Series B Note or Series B Notes over any other Series B Note or Series B Notes (except as provided herein), (d) reduce the percentage of the principal amount of the Series B Notes required for consent to such amendment or (f) alter the obligation of the Bank under the Series B Letter of Credit or of the Borrower under the Series B Note Documents such that the Owners are materially adversely affected. SECTION 9.03. EFFECT OF CONSENTS. After an amendment becomes effective, it will bind every Noteholder unless it makes a change described in any of the lettered clauses of the preceding Section. In such case, the amendment will bind each Noteholder who consented to it and each subsequent holder of a Series B Note or portion of a Series B Note evidencing the same debt as the consenting holder's Series B Note. SECTION 9.04. NOTATION ON OR EXCHANGE OF SERIES B NOTES. If an amendment or supplement changes the terms of a Series B Note, the Trustee may require the holder to deliver such Series B Note to the Paying Agent. The Paying Agent may place an appropriate notation on the Series B Note regarding the changed terms and return it to the holder. Alternatively, if the Trustee and the Borrower determine, the Borrower in exchange for the Series B Note will issue and the Paying Agent will authenticate a new Series B Note that reflects the changed terms. In either event, the cost of placing such notation on the Series B Note(s) shall be borne by the Borrower. SECTION 9.05. SIGNING BY TRUSTEE OF AMENDMENTS. The Trustee and the Paying Agent will sign any amendment to this Agreement or the Series B Notes authorized by this Article if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee or the Paying Agent. If it does, the Trustee or the Paying Agent may, but need not, sign it. In signing an amendment, the Trustee will be entitled to receive and (subject to 53 59 Section 8.01) will be fully protected in relying on an Opinion of Counsel stating that such amendment or supplement is authorized by this Agreement and is duly authorized, executed and delivered and enforceable in accordance with its terms. SECTION 9.06. BANK AND REMARKETING AGENT CONSENT REQUIRED. Except to the extent that the consent of the Remarketing Agent or the Bank is not required for the action that is the subject of the amendment (e.g., removal of the Remarketing Agent , the Trustee or the Paying Agent by the Borrower upon the terms specified herein), an amendment to this Agreement or the Series B Notes shall not become effective unless the Remarketing Agent (but only to the extent that such amendment affects the rights, duties or obligations of the Remarketing Agent hereunder) and the Bank deliver to the Trustee their written consents to the amendment. In any event, no amendment hereto shall become effective until the Remarketing Agent receives a copy of the amendment and acknowledges such receipt; provided, however, that receipt and acknowledgement of a copy of any such amendment by the Remarketing Agent shall be deemed to have occurred if the copy of the amendment is accompanied by notice requesting acknowledgement within three (3) Business Days, and the copy of the amendment is sent by facsimile to the Remarketing Agent (confirmed immediately by a telephone conversation between the sender of the facsimile and an authorized representative of the Remarketing Agent) and the Remarketing Agent fails to acknowledge receipt within three (3) Business Days. For purposes of this section, for so long as NationsBank, N.A. (Carolinas) serves as Remarketing Agent hereunder, an "authorized representative" of the Remarketing Agent shall mean a VRDN Product Manager. On the Date of Issuance, the Remarketing Agent shall deliver to the Borrower a certificate identifying each officer of the Remarketing Agent qualifying as a VRDN Product Manager on such date, and each such officer's title, address and telephone number. SECTION 9.07. NOTICE TO NOTEHOLDERS. The Trustee shall cause the Paying Agent to promptly mail notice of the execution of an amendment hereto to be mailed promptly by first-class mail to each Noteholder at the holder's registered address. The notice shall state briefly the nature of the amendment and that copies thereof are on file with the Trustee for inspection by all Noteholders. END OF ARTICLE IX 54 60 ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES. (a) Any notice, request, direction, designation, consent, acknowledgment, certification, appointment, waiver or other communication required or permitted by this Agreement or the Series B Notes must be in writing except as expressly provided otherwise in this Agreement or the Series B Notes. (b) Except as otherwise provided herein, any notice or other communication shall be sufficiently given and deemed given when delivered by hand or overnight express delivery or mailed by first-class mail, postage prepaid, addressed as follows or, if the communication may be given by telex or telecopy under the provisions of this Agreement, when telexed or telecopied to the following numbers (and, in the case of any telex or telecopy to the Borrower, confirmed in writing within 24 hours by receipted hand delivery): If to the Borrower: Hanover Direct, Inc. 1500 Harbor Boulevard, 1st Floor Weehawken, New Jersey 07087 Attention: General Counsel Telephone No.: (201) 319-3403 Fax No.: (201) 392-5005 If to the Trustee or the Paying Agent: Norwest Bank Minnesota, N.A. Norwest Center Sixth & Marquette Minneapolis, Minnesota 55479-0069 Attention: Corporate Trust Department Telephone No.: (612) 667-8058 Fax No.: (612) 667-9825 If to the Remarketing NationsBank, N.A. (Carolinas) Agent or Placement Agent: NationsBank Corporate Center 100 North Tryon Street NC1-007-06-07 Charlotte, North Carolina 28255 Attention: Money Market Sales Department Telephone No.: (704) 386-1752 Fax No.: (704) 386-6490 with a copy to: NationsBank, N.A. (Carolinas) 55 61 NationsBank Corporate Center, 6th Floor 100 North Tryon Street NC1-007-06-01 Charlotte, North Carolina 28255 Attention: VRDN Product Manager Telephone No.: (704) 386-8783 Fax No.: (704) 388-9366 If to the Bank: NationsBank, N.A. (Carolinas) 767 5th Avenue, 5th Floor New York, New York 10153 Attention: Christopher C. Browder Telephone No.: (212) 407-5322 Fax No.: (212) 751-6909 Any addressee may designate by giving notice in accordance with the foregoing additional or different addresses or telex or telecopy numbers for purposes of this Section. A copy of any notice to any party given hereunder (with the exception of notices required for drawings under any Series B Letter of Credit) shall be provided to the Remarketing Agent in the manner such notice is otherwise given. Upon the reasonable request of the Borrower (and at the Borrower's expense), (a) the Trustee and the Paying Agent will provide to the Borrower a list of names and addresses of and principal amounts held by the registered owners or Beneficial Owners of the Series B Notes for purposes of enabling the Borrower to obtain any consents or amendments or waivers hereunder and (b) the Remarketing Agent will cooperate in good faith with the Borrower in connection with any solicitation by the Borrower of Beneficial Owners of the Series B Notes relating to any consents or amendments or waivers hereunder; provided, however, that the Borrower covenants that it will use any information obtained from the Trustee, the Paying Agent or the Remarketing Agent regarding the Beneficial Owners of the Series B Notes only for the purpose of obtaining consents, amendments or waivers as required in the Series B Note Agreement; provided further, that the Borrower will not disclose the identity of any of the Beneficial Owners of the Series B Notes to any other Person except with the prior written consent of the Remarketing Agent in each and every instance. The beneficial owner of $1,000,000 or more of Series B Notes may, by written notice to the Paying Agent, request that all notices given with respect to such Series B Notes be given to the registered owner thereof and to a second address provided in such written notice to the Trustee. Upon receipt of such notice described in the preceding sentence, the Trustee shall send all notices relating to the relevant Series B Notes to the registered owner and the second address so designated. 56 62 SECTION 10.02. NOTEHOLDERS' CONSENTS. Any consent or other instrument required by this Agreement to be signed by Noteholders may be in any number of concurrent documents and may be signed by a Noteholder or by the holder's agent appointed in writing. Proof of the execution of such instrument or of the instrument appointing an agent and of the ownership of Series B Notes, if made in the following manner, shall be conclusive for any purposes of this Agreement with regard to any action taken by the Trustee under the instrument: (a) The fact and date of a person's signing an instrument may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within that jurisdiction that the person signing the writing acknowledged before the officer the execution of the writing, or by an affidavit of any witness to the signing. (b) The fact of ownership of Series B Notes, the amount or amounts, numbers and other identification of such Series B Notes and the date of holding shall be proved by the registration books kept by the Paying Agent pursuant to this Agreement. In determining whether the holders of the required principal amount of Series B Notes Outstanding have taken any action under this Agreement, the Trustee will disregard Bank Notes and Bank Notes will be deemed not to be Outstanding for such purpose. In determining whether the Trustee shall be protected in relying on any such action, only Series B Notes which the Trustee knows to be so owned shall be disregarded. SECTION 10.03. NOTICES TO RATING AGENCY. The Trustee shall notify the Rating Agency in writing of the occurrence of any of the following events prior to the proposed effective date thereof: (a) any change in the identity of the Trustee or the Remarketing Agent; (b) any amendment or modification of or change to this Agreement, the Reimbursement Agreement or the Series B Letter of Credit; (c) the expiration or termination of the Series B Letter of Credit, or any extension thereof, or the delivery of any Substitute Letter of Credit; (d) the payment in full of the principal of and interest on the Series B Notes; and (e) the delivery of any written opinion required to be delivered pursuant to Section 5.03(b)(i)(B). SECTION 10.04. LIMITATION OF RIGHTS. Nothing expressed or implied in this Agreement or the Series B Notes shall give any person other than the Trustee, the Borrower, the Bank, the Remarketing Agent and the Noteholders any right, remedy or claim under or with respect to this Agreement. SECTION 10.05. SEVERABILITY. If any provision of this Agreement shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this Agreement. SECTION 10.06. PAYMENTS DUE ON NON-BUSINESS DAYS. If a payment date is not a Business Day at the place of payment, then payment shall be made at that place on the next 57 63 succeeding Business Day, with the same force and effect as if made on the payment date, and, in the case of any such payment, no interest shall accrue for the intervening period. SECTION 10.07. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State. SECTION 10.08. COUNTERPARTS. This Agreement may be signed in several counterparts, each of which will be an original and all of which together will constitute the same instrument. SECTION 10.09. BINDING EFFECT. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns, except that no party hereto may assign any of its rights or obligations hereunder without the consent of the other parties, the Bank, the Remarketing Agent and the Placement Agent, unless otherwise provided herein. END OF ARTICLE X 58 64 IN WITNESS WHEREOF, the Borrower and the Trustee and Paying Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of April 27, 1995. HANOVER DIRECT, INC. By: --------------------------------- Name: --------------------------------- Title: --------------------------------- ATTEST By: ----------------------------------- Title: --------------------------------- [CORPORATE SEAL] NORWEST BANK MINNESOTA, N.A., AS TRUSTEE AND PAYING AGENT By: -------------------------------- Name: Polly B. Berquist Title: Corporate Trust Officer 59 65 THIS SERIES B NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE REGULATORY AUTHORITY UNDER ANY STATE SECURITIES LAWS AND THEREFORE CANNOT BE RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACT OR APPLICABLE LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. PAYMENTS OF PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THIS NOTE WILL BE MADE FROM DRAWINGS UNDER THE LETTER OF CREDIT ISSUED BY NATIONSBANK, N.A. (CAROLINAS) (THE "BANK") IF REMARKETING PROCEEDS ARE NOT AVAILABLE OR IF AN EVENT OF DEFAULT HAS OCCURRED. ALTHOUGH THE LETTER OF CREDIT IS A BINDING OBLIGATION OF THE BANK, THIS NOTE IS NOT A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS AND IS NOT GUARANTEED BY ANY OF THESE ENTITIES. THIS NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO CERTAIN INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. EXHIBIT A FORM OF SERIES B NOTE REGISTERED REGISTERED No. R-............... $...................... HANOVER DIRECT, INC. FLEXIBLE TERM SERIES B NOTES, SERIES B
INTEREST RATE MATURITY DATE DATE OF ISSUANCE - ------------- ------------- ---------------- As Described October 1, 2009 .................
REGISTERED OWNER: PRINCIPAL AMOUNT: Hanover Direct, Inc., a Delaware corporation (the "Borrower"), for value received, hereby promises to pay, solely from the sources and in the manner hereinafter provided, to the registered owner, or registered assigns or legal representative, upon presentation and surrender hereof at the principal corporate trust office of Norwest Bank Minnesota, N.A., or its successor (in such capacity, the "Paying Agent"), or by wire transfer, as provided in the Series B Note Agreement, as hereinafter defined, the principal sum set forth above on the Maturity Date set forth above, subject to the prior mandatory or optional redemption of this Series B Note as hereinafter provided, and to pay solely from such source interest hereon at the Interest A-1 66 Rate, as hereinafter defined, payable in arrears on the Interest Payment Date, as hereinafter defined, until payment in full and, to the extent permitted by law, interest on overdue installments of such interest, from the Interest Payment Date applicable to this Series B Note next preceding the date on which this Series B Note is authenticated, unless this Series B Note is (a) authenticated before the first Interest Payment Date following the initial delivery of the Series B Notes issued herein, in which case it shall bear interest from the date of such initial delivery or (b) authenticated upon an Interest Payment Date, in which case it shall bear interest from such Interest Payment Date (unless interest on this Series B Note is in default at the time of authentication, in which case this Series B Note shall bear interest from the last date to which interest has been paid). Except as otherwise provided in the Series B Note Agreement, interest hereon shall be paid to the person in whose name this Series B Note is registered on the register of the Paying Agent at the close of business on the Record Date next preceding each Interest Payment Date, by check or draft mailed to such person at his address as it appears on the register maintained by the Paying Agent, or by wire transfer for holders of an aggregate principal amount of at least $500,000, at the request of such holders, as provided in the Series B Note Agreement. Principal and Purchase Price, as hereinafter defined, of and interest on this Series B Note are payable in lawful currency of the United States of America. If any payment hereon is due on a day which is not a Business Day, as hereinafter defined, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the day such payment was due and, in the case of such payment, no interest shall accrue for the intervening period. This Series B Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series B (the "Series B Notes"), issued pursuant to a Series B Note Agreement dated as of April 27, 1995 (the "Series B Note Agreement"), between the Borrower and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series B Note Agreement, the Borrower has caused NationsBank, N.A. (Carolinas) (the "Bank") to issue its irrevocable Series B Letter of Credit dated the Date of Issuance (as hereinafter defined and as set forth above) of the Series B Notes (the "Series B Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series B Facility Amount and unpaid interest on or Purchase Price of the Series B Notes, but not to exceed $10,145,833, pursuant to a Credit Facilities and Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement Agreement") by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as agent, which Series B Letter of Credit initially expires (subject to extension or earlier termination as provided in the Reimbursement Agreement and the Series B Note Agreement) on April 27, 1998. Substitute letters of credit may be delivered in accordance with the Series B Note Agreement. The Trustee is authorized and directed pursuant to the Series B Note Agreement to make timely draws under the Series B Letter of Credit in accordance with the terms thereof, to the extent necessary to make when due the payments of principal of (whether on A-2 67 the Maturity Date referenced above, by acceleration, or by call for redemption), the Purchase Price of and interest on the Series B Notes, except as otherwise provided in the Series B Note Agreement and the Series B Letter of Credit. Reference is hereby made to the Series B Note Agreement, the Series B Letter of Credit, the Reimbursement Agreement and to all amendments and supplements thereto for a description of the provisions, among others, with respect to the nature and extent of the security, the default provisions, the rights, duties and obligations of the Borrower and the Trustee and the rights of the holders of the Series B Notes and the terms upon which the Series B Notes are issued and secured. The Series B Notes are issuable in registered form without coupons in denominations of $100,000 or any integral multiple of $100,000 in excess thereof (the "Authorized Denominations"). This Series B Note, upon surrender hereof at the principal corporate trust office of the Paying Agent with a written instrument of transfer satisfactory to the Paying Agent duly endorsed for transfer or accompanied by an assignment duly executed by the holder hereof or his attorney duly authorized in writing and, in either case, with an appropriate guarantee of signature conforming to the requirements of the assignment attached hereto, may, at the option of the holder hereof, be exchanged for Series B Notes of the same aggregate principal amount and tenor as the Series B Notes being exchanged and of any Authorized Denomination. This Series B Note is transferable as provided in the Series B Note Agreement, subject to certain limitations therein contained, only upon the register of the Paying Agent, and only upon surrender of this Series B Note for transfer to the Paying Agent duly endorsed for transfer or accompanied by a written instrument of transfer (in substantially the form of the assignment attached hereto) duly executed by the holder hereof or his duly authorized attorney. Thereupon, one or more new Series B Notes of any Authorized Denomination or Authorized Denominations and in the same aggregate principal amount and tenor as the Series B Note surrendered will be issued to the designated transferee or transferees. The person in whose name this Series B Note is registered shall be deemed and regarded as the absolute owner hereof for any purpose, as provided in and as qualified by the Series B Note Agreement. The Paying Agent or NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.), as Remarketing Agent (the "Remarketing Agent"), may make appropriate arrangements for some or all of the Series B Notes to be issued or held by means of a book-entry system administered by a Securities Depository, as hereinafter defined, with no physical distribution of Series B Notes made to the public (other than those Series B Notes, if any, not held under such book-entry system). Initially, all of the Series B Notes will be held by means of a book-entry system administered by the Securities Depository. One Series B Note certificate in registered form will be issued for the Series B Notes in the aggregate principal amount of $10,000,000, and will be registered in the name of the Securities Depository Nominee and will be deposited with the Paying Agent. Thereafter, in the event that Series B Notes are issued to the A-3 68 Beneficial Owners thereof in certificated (physical) form (and in each and every case thereafter in which a change in the principal amount of Series B Notes held pursuant to a book-entry system is made), the Paying Agent will take all actions necessary to comply with the Balance Certificate Agreement dated as of the date hereof between Norwest Bank Minnesota, N.A., as transfer agent, and the Securities Depository, which agreement governs the mechanisms for the registration of transfer of Series B Note certificates registered in the name of the Securities Depository Nominee. With respect to any Series B Notes that are held by means of a book-entry system, such book-entry system will evidence beneficial ownership of the Series B Notes so held in Authorized Denominations (or, as applicable, positions held by the Participants, beneficial ownership being evidenced in the records of such Participants). Registration and transfers of ownership shall be effected on the records of the Securities Depository and the Participants, as applicable, pursuant to rules and procedures established by the Securities Depository and the Participants. Subject to the provisions of Section 7.09 of the Series B Note Agreement relating to the Bank as holder of the Series B Notes, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting, subject to certain qualifications as stated in the Series B Note Agreement. Transfer of principal, interest and Purchase Price payments to beneficial owners of the Series B Notes so held will be the responsibility of the Securities Depository and the Participants. The Borrower, the Trustee, the Bank and the Paying Agent will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by the Securities Depository, the Securities Depository Nominee or the Participants. While the Securities Depository Nominee is the owner of the Series B Notes so held, notwithstanding the provision hereinabove contained, payments of principal and Purchase Price of and interest on such Series B Notes shall be made in accordance with the Letter of Representations dated as of April 27, 1995 among the Borrower, the Trustee, the Remarketing Agent and Paying Agent and received and accepted by the Securities Depository. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE AND TRANSFER OF OWNERSHIP IS MAINTAINED WITH RESPECT TO THIS SERIES B NOTE IN ACCORDANCE WITH THE TERMS OF THE SERIES B NOTE AGREEMENT, (1) THE PROVISIONS OF THIS SERIES B NOTE RELATING TO THE DELIVERY OF PHYSICAL SERIES B NOTES SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED WITH REGARD TO THIS SERIES B NOTE AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM AND (2) THE PROVISIONS OF THIS SERIES B NOTE RELATING TO ISSUANCE, PAYMENTS OF PRINCIPAL, PURCHASE PRICE AND INTEREST, AND ESTABLISHMENT OF INTEREST RATES AND INTEREST PERIODS WITH RESPECT TO THE SERIES B NOTES SHALL BE APPLICABLE TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES B NOTES A-4 69 IN AUTHORIZED DENOMINATIONS TO THE SAME EXTENT AS SUCH PROVISIONS ARE APPLICABLE TO REGISTERED OWNERSHIP INTERESTS IN THE SERIES B NOTES. In the event that a book-entry system of evidence and transfer of ownership of the Series B Notes is discontinued pursuant to the provisions of the Series B Note Agreement, the Series B Notes shall be delivered solely in registered form without coupons in the Authorized Denominations, shall be lettered "R" and numbered separately from 1 upward, and shall be payable, executed, authenticated, registered, exchanged and cancelled pursuant to the provisions hereof and of the Series B Note Agreement. All references herein to time shall be Charlotte, North Carolina time unless otherwise expressly stated herein. Except as otherwise specifically provided herein, all capitalized words and terms shall have the same meaning when used herein as set forth in the Series B Note Agreement. 1. CERTAIN DEFINITIONS. "BENEFICIAL OWNER" or "BENEFICIAL OWNER" means the holder of the beneficial ownership interest in each Series B Note as evidenced on (i) if such Series B Note is held pursuant to a book-entry system, the books maintained by the Securities Depository (and, as applicable, its participants or persons acting through such participants), as more fully described in the Letter of Representations, or (ii) if such Series B Note is not held pursuant to a book-entry system, the register maintained by the Paying Agent. "BUSINESS DAY" means any day other than (a) Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or in the city or cities in which the corporate trust office of the Trustee or the Paying Agent, the primary office of the Remarketing Agent or the Placement Agent or the paying office of the Bank are authorized by law or executive order to close or (c) a day on which the New York Stock Exchange is closed. For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series B Letter of Credit. "DATE OF ISSUANCE" means the date upon which the Series B Notes are issued, authenticated and delivered in accordance with the terms and conditions of Section 2.06 of the Series B Note Agreement. "INTEREST PAYMENT DATE" means the first day after the last day of each Interest Period. "INTEREST PERIOD" means, with respect to any Series B Note, each period of between one (1) and one hundred eighty (180) days established from time to time by the A-5 70 Remarketing Agent in accordance with the Interest Period determination method described in Section 2.02(a) of the Series B Note Agreement. "INTEREST RATE" means, with respect to any Series B Note, the interest rate on such Series B Note determined from time to time by the Remarketing Agent in accordance with the Interest Rate determination method described in Section 2.02(a) of the Series B Note Agreement. In no event shall the Interest Rate exceed the lesser of fifteen percent (15%) per annum or the highest interest rate which may be borne by the Series B Notes under applicable law. "PARTICIPANTS" means securities brokers and dealers, banks, trust companies and clearing corporations which have access to the Securities Depository's system. "PURCHASE DATE" means, with respect to any Series B Notes, the date on which such Series B Notes are required to be purchased pursuant to the terms and conditions of Section 3.07(a) of the Series B Note Agreement. "PURCHASE PRICE" means an amount equal to 100% of the principal amount of any Series B Note tendered or deemed tendered to the Trustee for purchase pursuant to the terms and conditions of Section 3.07 of the Series B Note Agreement, plus accrued and unpaid interest thereon to, but excluding, the Purchase Date. "RECORD DATE" means, with respect to each Interest Payment Date, the Trustee's close of business on the Business Day next preceding such Interest Payment Date. "SECURITIES DEPOSITORY" means, initially, The Depository Trust Company, or any successor or substitute securities depository selected by the Borrower (with the consent of the Trustee and the Remarketing Agent), which shall maintain a book-entry system in respect of the Series B Notes. "SECURITIES DEPOSITORY NOMINEE" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the register maintained by the Paying Agent the Series B Note certificate to be delivered to and immobilized with the Paying Agent during continuation with such Securities Depository of participation in its book-entry system, and shall initially be Cede & Co., nominee of The Depository Trust Company. 2. INTEREST ON THE SERIES B NOTES. The Series B Notes will bear interest at the Interest Rate from the Date of Issuance until paid in full. Interest accrued on each Series B Note shall be paid on the applicable Interest Payment Date therefor. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed over a year of 360 days. The initial Interest Period and corresponding Interest Rate for each Series A-6 71 B Note will be determined by the Remarketing Agent on the Date of Issuance. After the initial determination of the Interest Period and corresponding Interest Rate, the applicable Interest Period and corresponding Interest Rate shall be determined by the Remarketing Agent at the time and in the manner specified in Section 2.02 of the Series B Note Agreement. The Remarketing Agent's determination of the Interest Periods and Interest Rates shall be conclusive and binding on the Noteholders, the Paying Agent, the Remarketing Agent, the Borrower, the Bank and the Trustee. The Remarketing Agent will notify the Paying Agent in writing (which may be in telecopy form) or by telephone promptly confirmed in writing by 10:00 a.m. on the first Business Day of each Interest Period with respect to any Series B Note, of the identity of such Series B Note, the length of such Interest Period, the Interest Rate therefor and the principal amount of such Series B Note, and, upon the request of the Borrower or the Bank, the Paying Agent shall promptly (but in no event later than the end of such Business Day) after its receipt of such information, forward such information to the Borrower and the Bank. The failure by the Remarketing Agent or the Paying Agent, as applicable, to give any such notice shall not affect the change in the Interest Period and/or Interest Rate. The calculation of interest payable on the Series B Notes as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders, absent manifest error. Neither the Remarketing Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Trustee, the Paying Agent, the Bank or any Noteholder for any action taken or not taken by the Remarketing Agent or any of its directors, officers, agents or employees in connection with the determination of the Interest Period and Interest Rate for each Series B Note pursuant to the Series B Note Agreement, in the absence of its own negligence or willful misconduct. 3. REDEMPTION OF SERIES B NOTES. (a) OPTIONAL REDEMPTION. The Series B Notes are subject to redemption at the option of the Borrower, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date; provided that any such redemption in part shall be in a minimum principal amount of $100,000. (b) MANDATORY SINKING FUND REDEMPTION. The Series B Notes are subject to mandatory sinking fund redemption prior to the Maturity Date, in part, with the Series B Notes to be redeemed being selected pursuant to Section 3.03 of the Series B Note Agreement, at a redemption price equal to the principal amount thereof, on October 1, or if any such date is not a Business Day, on the next succeeding Business Day with the same force and effect, in the years and in the principal amounts indicated below: A-7 72
REDEMPTION DATE PRINCIPAL (OCTOBER 1) AMOUNT ----------- ------ 1996 $500,000 1997 500,000 1998 500,000 1999 500,000 2000 800,000 2001 800,000 2002 800,000 2003 800,000 2004 800,000 2005 800,000 2006 800,000 2007 800,000 2008 800,000 2009 800,000
(c) MANDATORY REDEMPTION ON EXPIRATION OR TERMINATION OF SERIES B LETTER OF CREDIT WITHOUT EXTENSION OR PROVIDING A SUBSTITUTE SERIES B LETTER OF CREDIT. The Series B Notes are subject to mandatory redemption in whole on the fifth (5th) Business Day prior to the stated date of expiration or termination of the Series B Letter of Credit, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date, unless by the twentieth (20th) day prior to such redemption date the Borrower provides to the Trustee, and the Trustee has accepted, (1) evidence that such Series B Letter of Credit has been extended or (2) a Substitute Series B Letter of Credit to be effective on or prior to such redemption date. (d) REDEMPTION DATE. The redemption date for Series B Notes to be redeemed as described in paragraph 3(a) above must be an Interest Payment Date with respect to the Series B Notes being redeemed. The redemption date for mandatory redemptions will be as specified in paragraph 3(b) or (c) above, as the case may be, or determined by the Trustee or the Remarketing Agent consistently with the provisions thereof and of the Series B Note Agreement. (e) SELECTION OF SERIES B NOTES TO BE REDEEMED. Except as otherwise provided herein or in Section 3.03 of the Series B Note Agreement, if fewer than all the Series B Notes are to be redeemed, the Remarketing Agent will select the Series B Notes to be redeemed by lot or such other method as it deems in its sole discretion to be fair and appropriate and shall notify the Paying Agent (which notice may be provided by telephone, immediately confirmed in writing by legible facsimile transmission, registered or certified mail, overnight express delivery, or other secure means) of the holders and denominations of Series B Notes to be redeemed; provided, however, that in selecting Series B Notes to be redeemed the Remarketing Agent shall (i) select only Series B Notes not previously called for redemption, (ii) select Bank Notes prior to any other Series B Notes, and (iii) with respect to A-8 73 any mandatory sinking fund redemption as described in paragraph 3(b) above, select the Series B Notes to be redeemed on or before the sixtieth (60th) day prior to the redemption date, and in making such selection take into account the duration of the Interest Periods with respect to such Series B Notes. In the event the Remarketing Agent fails to notify the Paying Agent of the Series B Notes to be redeemed on or before the ninth (9th) Business Day prior to the redemption date, the Paying Agent shall proceed to select Series B Notes for redemption from among the Outstanding Series B Notes in the chronological order in which their Purchase Dates occur, beginning with the earliest Purchase Date; provided, however, that in selecting Series B Notes to be redeemed the Paying Agent shall (i) select only Series B Notes not previously called for redemption and (ii) select Bank Notes prior to any other Series B Notes. If fewer than all Series B Notes having the same Purchase Date (selected for redemption as provided in the immediately preceding sentence) are to be redeemed, the Paying Agent shall treat each owner of Series B Notes as the owner of one Series B Note for purposes of selection for redemption, and shall select Series B Notes for redemption by lot or such other method as it deems fair and appropriate, (1) from among the holders of less than $1,000,000 in aggregate principal amount, provided that if there are no such holders, or if, after selection from among such holders such selection has not resulted in redemption of a sufficient amount of Series B Notes, then (2) from among the holders of $1,000,000 or more in aggregate principal amount of Series B Notes. No portion of a Series B Note may be redeemed that would result in a Series B Note which is smaller than the then permitted minimum Authorized Denomination. For this purpose, the Remarketing Agent or the Paying Agent will consider each Series B Note in a denomination larger than the minimum denomination permitted by the Series B Notes at the time to be separate Series B Notes each in the minimum denomination. (f) NOTICE OF REDEMPTION. The Trustee will prepare and cause the Paying Agent to send notice of each redemption to each Noteholder whose Series B Notes are being redeemed, the Borrower, the Remarketing Agent and the Bank by first-class mail at least seven (7) Business Days but not more than sixty (60) (or twenty (20), in the case of a mandatory redemption pursuant to paragraph 3(c) above) days before each redemption. The notice shall identify the Series B Notes or portions thereof to be redeemed and will state: (i) the type of redemption and the redemption date, (ii) the redemption price, (iii) that the Series B Notes called for redemption must be surrendered to collect the redemption price, (iv) the address of the Paying Agent at which the Series B Notes must be surrendered, (v) that interest on the Series B Notes called for redemption ceases to accrue on the redemption date, (vi) the CUSIP number of the Series B Notes called for redemption and (vii) any condition to the redemption. Failure by the Trustee or the Paying Agent to give any notice of redemption as to any particular Series B Notes will not affect the validity of the call for redemption of any Series B Notes in respect of which no such failure has occurred. Any notice mailed as provided in the Series B Notes will be conclusively presumed to have been given whether or not actually received by any holder or beneficial owner. A-9 74 (g) EFFECT OF REDEMPTION. On the date fixed for redemption, notice having been given in the manner and under the conditions provided in the Series B Note Agreement, the Series B Notes or portions thereof called for redemption shall be due and payable at the redemption price provided therefor, plus accrued interest to such date. On such redemption date, if moneys sufficient to pay the redemption price of the Series B Notes to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Paying Agent, interest on the Series B Notes called for redemption shall cease to accrue; such Series B Notes shall cease to be entitled to any benefits or security under the Series B Note Agreement or to be deemed Outstanding; and the holders and beneficial owners of such Series B Notes shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to, but excluding, the date of redemption. (h) SERIES B NOTES REDEEMED IN PART. Upon surrender of a Series B Note redeemed in part, the Paying Agent will authenticate for the holder a new Series B Note or Series B Notes equal in principal amount to the unredeemed portion of the Series B Note surrendered. 4. PURCHASE OF SERIES B NOTES. (a) MANDATORY PURCHASE OF SERIES B NOTES; NOTICE. Except as provided in paragraph 4(c) below, Series B Notes are subject to mandatory purchase at the Purchase Price: (i) on each Interest Payment Date applicable to such Series B Note; and (ii) on the effective date of any Substitute Series B Letter of Credit delivered in accordance with the terms and conditions of the Series B Note Agreement, if, but only if, such Substitute Series B Letter of Credit will result in a Credit Modification. The Trustee will prepare and cause the Paying Agent to send written notice of each mandatory purchase described in paragraph 4(a)(ii) above (a "Notice of Mandatory Purchase") to each Noteholder whose Series B Notes are being purchased, the Remarketing Agent, the Bank and the Borrower at least 15 days but not more than 60 days before the Purchase Date. No Notice of Mandatory Purchase will be given to holders or beneficial owners of Series B Notes if the mandatory purchase is being made as described in paragraph 4(a)(i) above. (b) PAYMENT FOR PURCHASED SERIES B NOTES. The Purchase Price of Series B Notes to be purchased on a Purchase Date shall be paid from Remarketing Proceeds available to pay the Purchase Price of such Series B Notes and, to the extent Remarketing Proceeds are not available to pay the Purchase Price of such Series B Notes, from proceeds of a draw on the Series B Letter of Credit pursuant to the applicable provisions of Section 5.02(a)(iv) of the Series B Note Agreement. To the extent that sufficient moneys have been A-10 75 made available therefor to the Paying Agent or the Remarketing Agent, as applicable, by 1:45 p.m. on the Purchase Date pursuant to Sections 3.08 and 5.02 of the Series B Note Agreement, upon surrender to the Paying Agent of Series B Notes called for mandatory purchase as provided in the Series B Note Agreement, the Purchase Price therefor shall be paid in immediately available funds by the Paying Agent's or the Remarketing Agent's, as applicable, close of business on the Purchase Date. From and after the Purchase Date or, if later, the date on which such moneys are made available to the Paying Agent or the Remarketing Agent, as applicable, interest accruing on such Series B Notes shall cease to be payable to the prior holder thereof, such Series B Notes shall cease to be entitled to the benefits of the Series B Note Agreement and to such extent the prior holder shall have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of such Series B Notes as provided in Section 4.03 of the Series B Note Agreement. Notwithstanding any provision to the contrary herein or in the Series B Note Agreement, for so long as the Series B Notes are held pursuant to a book-entry system maintained by DTC, payments of Purchase Price with respect to such Series B Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) LIMITATION ON TENDERS. The holders shall not be required to tender any Series B Note for purchase on a Purchase Date if on such date, following the occurrence of an Event of Default, the Trustee shall have declared the principal of and interest on the Series B Notes immediately due and payable pursuant to Section 7.02 of the Series B Note Agreement. (d) In the event that any Series B Note purchased pursuant to a mandatory purchase is not delivered by the holder thereof on the date such Series B Note is purchased, the Borrower shall execute (if necessary) and the Paying Agent will authenticate and deliver a new Series B Note of like aggregate principal amount as the Series B Note purchased, the Series B Note purchased shall no longer be deemed outstanding and the owner thereof shall be entitled to receive only those funds held on deposit with respect thereto, and the new Series B Note shall, for all purposes of the Series B Note Agreement, be deemed to evidence the same debt as the Series B Note purchased and shall be remarketed, delivered and registered in accordance with the terms of this Series B Note and the Series B Note Agreement. 5. REMARKETING OF PURCHASED SERIES B NOTES. (a) REMARKETING EFFORT. Except as otherwise provided in Section 3.08(a) of the Series B Note Agreement, the Remarketing Agent will use reasonable best efforts to remarket on the Purchase Date all Series B Notes purchased in accordance with the terms of Section 3.07 of the Series B Note Agreement and, to the extent such purchased Series B Notes are not remarketed on the Purchase Date, thereafter will continue to use reasonable best efforts to remarket such purchased Series B Notes, upon the terms and subject to the conditions of the Remarketing Agreement. A-11 76 (b) REMARKETING PROCEEDS. To the extent the Remarketing Agent has remarketed Series B Notes and has received funds representing a payment for such Series B Notes (the "Remarketing Proceeds") from the purchasers thereof, the Remarketing Agent will promptly forward the Remarketing Proceeds by wire transfer (or in such other manner as is acceptable to the Remarketing Agent) to the holders tendering such Series B Notes for purchase (or, if required pursuant to Section 3.08(b) of the Series B Note Agreement, to the Paying Agent). Except as otherwise provided below with respect to Bank Notes, until such transfer, all such Remarketing Proceeds shall be deposited in a separate, segregated account of the Remarketing Agent (or, if transferred to the Paying Agent as provided in the Series B Note Agreement, in a separate, segregated account of the Paying Agent) for application in accordance with the applicable provisions of Section 3.08(b) of the Series B Note Agreement, and until so applied shall be held in trust for the benefit of the holders tendering such Series B Notes for purchase. Notwithstanding any provision to the contrary herein or in the Series B Note Agreement, for so long as the Series B Notes are held pursuant to a book-entry system maintained by DTC, payments of Remarketing Proceeds with respect to such Series B Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) DELIVERY OF PURCHASED SERIES B NOTES. Series B Notes purchased with Remarketing Proceeds (other than Bank Notes) shall be delivered to the purchasers thereof upon receipt of payment therefor. Prior to such delivery, the Paying Agent shall provide for registration of transfer to the Holders, as provided in a written notice from the Remarketing Agent. 6. MONEYS TO BE HELD IN TRUST. All proceeds of a draw on the Series B Letter of Credit received by the Trustee and all money that the Trustee or the Paying Agent shall hold in, or shall have withdrawn from, the Series B Letter of Credit Fund or shall have received from any other source and set aside for the purpose of paying any of the Series B Notes, either on the Maturity Date set forth above or by purchase (other than as provided in Section 3.08 of the Series B Note Agreement regarding remarketing of Series B Notes) or call for redemption or for the purpose of paying any interest on the Series B Notes, shall be held in trust for the respective holders or beneficial owners of the Series B Notes. Moneys received by the Remarketing Agent, the Paying Agent or the Trustee from the sale of a Series B Note under Section 3.08 of the Series B Note Agreement regarding remarketing of Series B Notes or from the purchase of any Series B Note will be held segregated from other funds held by the Remarketing Agent, the Paying Agent or the Trustee for the benefit of the Person from whom such Series B Note was purchased and will not be invested while so held. Any money that is so set aside and that remains unclaimed by the holders or beneficial owners for a period of five (5) years after the date on which such Series B Notes have become payable shall be remitted to the Borrower and thereafter the holders or beneficial owners shall look only to the Borrower for payment and then only to the extent of the amounts so received, without any interest thereon, and the Trustee, the Remarketing Agent, the Paying Agent and the Bank shall have no responsibility with respect to such money. A-12 77 7. DEFAULTS AND REMEDIES. Upon the occurrence of certain events, and on the conditions, in the manner and with the effect set forth in Article VII of the Series B Note Agreement, the principal of all Series B Notes then outstanding under the Series B Note Agreement may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Series B Note Agreement directs the Trustee to declare an acceleration upon notice by the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement, and upon the occurrence of certain other Events of Default under the Series B Note Agreement. The Trustee has the right to accelerate the entire unpaid principal of and interest on the Series B Notes in certain events only with the Bank's consent, all as provided in more detail in Article VII of the Series B Note Agreement to which reference is hereby made. The owner of this Series B Note shall have no right to enforce the provisions of the Series B Note Agreement or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Series B Note Agreement, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Series B Note Agreement and except that any registered owner may institute action to enforce the payment of the principal of or interest on his Series B Note. 8. MISCELLANEOUS. Modifications or alterations of the Series B Note Agreement may be made only to the extent and in the circumstances permitted by Article IX of the Series B Note Agreement. Executed counterparts of the Series B Note Agreement are on file at the principal corporate trust office of the Trustee. The holder of this Series B Note, by acceptance hereof, consents to all of the terms and provisions of the Series B Note Agreement. It is hereby certified that all acts, conditions and things required to happen, exist and be performed under the laws of the State of New York, and under the Series B Note Agreement precedent to and in connection with the issuance of this Series B Note have happened, exist and have been performed as so required, and that the issuance, authentication and delivery of this Series B Note have been duly authorized by the Borrower. Unless the Certificate of Authentication hereto has been executed by the Paying Agent by manual signature of one of its Responsible Officers, this Series B Note shall not be entitled to any benefit under the Series B Note Agreement, or be valid or obligatory for any purpose. A-13 78 IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this Series B Note to be executed in its name and on its behalf by the manual or facsimile signature of the President and Treasurer and attested by manual or facsimile signature of the Secretary or Assistant Secretary and sealed with the corporate seal of Hanover Direct, Inc., all as of the Date of Issuance set forth above. HANOVER DIRECT, INC. By: /s/ Jack Rosenfeld ------------------------------ Name: Jack Rosenfeld Title: President and CEO ATTEST: By: --------------------------------- Name: ------------------------------- Title: ------------------------------- [CORPORATE SEAL] By: /s/ Edward J. O'Brien ------------------------------ Name: Edward J. O'Brien Title: Senior Vice President and Treasurer A-14 79 CERTIFICATE OF AUTHENTICATION This Series B Note is one of the Series B Notes issued under the provisions of the within-mentioned Series B Note Agreement. NORWEST BANK MINNESOTA, N.A., as Paying Agent By: ------------------------------- Responsible Officer Dated: --------------- A-15 80 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto (PLEASE PRINT OR TYPE THE NAME AND ADDRESS, INCLUDING THE ZIP CODE OF THE TRANSFEREE, AND THE FEDERAL TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) the within Series B Note and all rights thereunder, and hereby irrevocably constitutes and appoints ________________ Attorney to transfer the within Series B Note on the books kept for registration and transfer thereof, with full power of substitution in the premises. Dated: ------------ By: -------------------------------------- NOTICE: The signature of the Registered Owner above must correspond with the name of the Registered Owner as it appears on the registration books maintained by the Paying Agent. Signature Guaranteed By: ------------ NOTICE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. A-16 81 EXHIBIT B NOTICE OF MANDATORY REPURCHASE TO THE OWNERS OF $10,000,000 HANOVER DIRECT, INC. FLEXIBLE TERM NOTES, SERIES B NOTICE IS HEREBY GIVEN pursuant to Section 3.07 of the Series B Note Agreement dated as of April 27, 1995 (the "Agreement") between Hanover Direct, Inc. (the "Borrower") and Norwest Bank Minnesota, N.A., as trustee and paying agent (the "Trustee" and the "Paying Agent", as applicable), that the above-referenced Series B Notes are subject to mandatory purchase on [DATE] (the "Purchase Date"). The Series B Letter of Credit currently in effect is [DESCRIPTION OF Series B Letter of Credit]. Such Series B Letter of Credit will expire/be terminated and replaced with [DESCRIPTION OF SUBSTITUTE Series B Letter of Credit] on [EFFECTIVE DATE]. [DESCRIBE TERMS OF NEW Series B Letter of Credit]. [The existing rating or ratings assigned to the Series B Notes will be reduced to [RATING/RATINGS]/withdrawn due to the termination/expiration and replacement of the Series B Letter of Credit currently in effect.] The Series B Notes are subject to mandatory purchase on the Purchase Date at a Purchase Price of 100% of the principal amount of Series B Notes being purchased plus interest accrued to, but excluding, the Purchase Date. The owners are required to tender their Series B Notes, properly endorsed to the Paying Agent by 10:00 a.m. on the Purchase Date. All purchases will be made in immediately available funds on the Purchase Date. From and after the Purchase Date, interest accruing on the Series B Notes shall cease to be payable to the prior holder thereof, the Series B Notes shall cease to be entitled to the benefits of the Agreement and the prior holder will have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of the Series B Notes. All terms used herein which are not defined herein shall have the meanings assigned to them in the Agreement. Dated: NORWEST BANK MINNESOTA, N.A., AS PAYING AGENT FOR HANOVER DIRECT, INC. By: ---------------------------- B-1 EX-10.55 23 FIRST AMENDMENT TO SERIES B NOTE 1 Exhibit 10.55 FIRST AMENDMENT TO SERIES B NOTE This FIRST AMENDMENT TO SERIES B NOTE dated as of December 29, 1995, is made by HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), with the consent of Norwest Bank Minnesota, N.A., as trustee and paying agent (the "Trustee" or the "Paying Agent", as applicable); W I T N E S S E T H: WHEREAS, the Borrower and the Trustee entered into the Series B Note Agreement dated as of April 27, 1995, as amended pursuant to that certain First Supplemental Series B Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series B Note Agreement") pursuant to which the Borrower issued and sold its interest bearing Flexible Term Notes, Series B (the "Series B Notes") in the aggregate principal amount of $10,000,000 and in the form of Series B Note R-1, registered in the name of Cede & Co. (as defined in the Series B Note Agreement) and deposited with the Paying Agent ("Series B Note R-1"); and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series B Letter of Credit in substitution for the Series B Letter of Credit (each as defined in the Series B Note Agreement); and WHEREAS, in order to more fully evidence the delivery of the Substitute Series B of Letter of Credit referenced above, the Borrower and the Trustee desire to amend Series B Note R-1, subject to the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used in this First Amendment to Series B Note and not otherwise herein defined shall have the meaning ascribed to them in the Series B Note Agreement. SECTION 2. AMENDMENTS TO SERIES B NOTE R-1. Series B Note R-1 is hereby amended as follows: (a) The second boldface paragraph on the first page of Series B Note R-1 (prior to the text thereof) is hereby deleted in its entirety and replaced with the following: PAYMENTS OF PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THIS SERIES B NOTE WILL BE MADE FROM DRAWINGS UNDER THE SERIES B LETTER OF CREDIT (HEREINAFTER DEFINED) IF REMARKETING PROCEEDS ARE NOT 2 AVAILABLE OR IF AN EVENT OF DEFAULT HAS OCCURRED. ALTHOUGH THE SERIES B LETTER OF CREDIT IS A BINDING OBLIGATION OF CORESTATES BANK, N.A. (THE "L/C ISSUER"), THIS SERIES B NOTE IS NOT A DEPOSIT OR OBLIGATION OF CORESTATES FINANCIAL CORP OR ANY OF ITS AFFILIATES, INCLUDING THE L/C ISSUER AND CONGRESS FINANCIAL CORPORATION, NOR IS THIS SERIES B NOTE A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS, INCLUDING NATIONSBANK, N.A., AND THIS SERIES B NOTE IS NOT GUARANTEED BY ANY OF THESE ENTITIES. THIS SERIES B NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO CERTAIN INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. (b) The second paragraph of the text of Series B Note R-1, beginning on page 2 thereof, is amended by deleting the first two sentences thereof and replacing them with the following: This Series B Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series B (the "Series B Notes"), issued pursuant to a Series B Note Agreement dated as of November 9, 1994, between the Borrower, and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, as amended by that certain First Supplemental Series B Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series B Note Agreement"), for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility owned and used by certain subsidiaries of the Borrower located in Roanoke, Virginia and a new retail store of Gump's Corp., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series B Note Agreement, the Borrower has arranged, through a credit facility established with Lender for certain of Borrower's subsidiaries, and as guarantor of such financing arrangements with Lender, for L/C Issuer to issue for the account of such subsidiaries its irrevocable Series B Letter of Credit dated December 29, 1995 (the "Series B Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series B Facility Amount and unpaid interest on or Purchase Price of the Series B Notes, but not to exceed $10,145,833, pursuant to (a) the Application for Irrevocable Standby Letter of Credit dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties (as defined in the Series B Note Agreement) and the Lender requesting the issuance by the L/C Issuer of the Series B Letter of Credit (the "Application"), (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account 2 3 Parties and certain other subsidiaries of the Borrower, and the Lender, acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the Application pursuant to which the Series B Letter of Credit is issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series B Letter of Credit or lender providing credit support to such issuer (individually and collectively, the "Reimbursement Agreement"). (c) The seventh paragraph of the text of Series B Note R-1, beginning on page 4 thereof, is amended by deleting the third sentence thereof in its entirety and replacing it with the following: The Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting. (d) Section 1 of Series B Note R-1, beginning on page 5 thereof, is amended by adding the following definition: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (e) Subsection (c) of Section 3 of Series B Note R-1, beginning on page 8 thereof, is amended by deleting the reference to the "Bank" in the eighth line thereof and replacing it with a reference to the "L/C Issuer". (f) Subsection (f) of Section 3 of Series B Note R-1, beginning on page 9 thereof, is amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender." (g) Subsection (a) of Section 4 of Series B Note R-1, beginning on page 10 thereof, is amended by deleting the reference to the "Bank" in the fourth line of the last paragraph thereof and replacing it with a reference to the "Lender." (h) Section 7 of Series B Note R-1, beginning on page 13 thereof, is amended by deleting the second and third sentences of the first paragraph thereof in their entirety and replacing them with the following: The Series B Note Agreement directs the Trustee to declare an acceleration upon written notice by the Lender of the occurrence and continuance of an event of 3 4 default under the Reimbursement Agreement and upon the occurrence of certain other Events of Default under the Series B Note Agreement. SECTION 3. EFFECT OF FIRST AMENDMENT TO SERIES B NOTE; NO NOVATION. Except as modified hereby, all of the terms and provisions of Series B Note R-1 shall remain in full force and effect. This First Amendment to Series B Note amends Series B Note R-1 and shall not be construed to constitute a novation thereof in any manner whatsoever. SECTION 4. GOVERNING LAW. This First Amendment to Series B Note and Series B Note R-1, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. SECTION 5. SEVERABILITY. If any provision of this First Amendment to Series B Note shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this First Amendment to Series B Note. [Signatures on following page] 4 5 IN WITNESS WHEREOF, the Borrower has caused this First Amendment to Series B Note to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ---------------------------- Name: Edward J. O'Brien -------------------------- Title: Executive VP & Treasurer -------------------------- [CORPORATE SEAL] 5 6 CONSENT TO FIRST AMENDMENT TO SERIES B NOTE Norwest Bank Minnesota, N.A., as Paying Agent, hereby consents to the amendments to Series B Note R-1 provided for herein. NORWEST BANK MINNESOTA, N.A., as Trustee and Paying Agent By: ------------------------ Name: ---------------------- Title: ---------------------- 6 EX-10.56 24 SECOND SUPPLEMENTAL TO SERIES B NOTE AGREEMENT 1 EXHIBIT 10.56 SECOND SUPPLEMENTAL SERIES B NOTE AGREEMENT This SECOND SUPPLEMENTAL SERIES B NOTE AGREEMENT dated as of December 18, 1996, between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and NORWEST BANK MINNESOTA, N.A., a national banking association organized under the laws of the United States of America and having its principal office in Minneapolis, Minnesota, as trustee and paying agent (the "Trustee" or the "Paying Agent", as applicable); W I T N E S S E T H : WHEREAS, the Borrower and the Trustee entered into the Series B Note Agreement dated as of April 27, 1995 (the "Series B Note Agreement") pursuant to which the Borrower issued and sold its interest bearing Flexible Term Notes, Series B (the "Series B Notes") in the aggregate principal amount of $10,000,000; and WHEREAS, the Series B Note Agreement was modified on December 29, 1995 by the First Supplemental Series B Note Agreement by and between Borrower and Trustee (the "First Supplemental Series B Note Agreement") to reflect the delivery of a substitute Letter of Credit; WHEREAS, the Borrower has this day, delivered to the Trustee a Substitute Series B Letter of Credit in substitution for the Series B Letter of Credit (each as defined in the Series B Note Agreement); and WHEREAS, in order to more fully evidence the delivery of the Substitute Series B of Letter of Credit referenced above, the Borrower and the Trustee desire to further amend the Series B Note Agreement, subject to the terms and conditions set forth herein. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used in this First Supplemental Series B Note Agreement and not otherwise herein defined shall have the meaning ascribed to them in the Series B Note Agreement. SECTION 2. AMENDMENT TO SECOND RECITAL OF THE SERIES B NOTE AGREEMENT. The second recital of the Series B Note Agreement on page 1 thereof is hereby amended by deleting the reference to the "L/C Issuer" in the third line thereof and replacing it with a reference to the "Bank". 2 SECTION 3. AMENDMENTS TO SECTION 1.01 OF THE SERIES B NOTE AGREEMENT. (a) The definition of "BANK" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "BANK" means the issuer of the Series B Letter of Credit, initially NationsBank of North Carolina, N.A. (predecessor to NationsBank, N.A.) and upon the issuance and delivery of a Substitute Series B Letter of Credit, shall mean the issuer of such Substitute Series B Letter of Credit. (b) The definition of "BANK NOTES" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "BANK NOTES" means any Series B Notes purchased with proceeds from a draw under the Series B Letter of Credit and pledged to the Bank under the Reimbursement Agreement, including, in the event a book-entry system with respect to the Series B Notes is in effect, any beneficial ownership interest therein; provided that in the event that the Bank fails to honor a drawing under the Series B Letter of Credit to fund such a purchase and the Borrower purchases such Series B Notes with its own funds, "Bank Notes" shall include such Series B Notes, except that such Series B Notes shall not be pledged to the Bank under the Reimbursement Agreement. (c) The definition of "BUSINESS DAY" set forth in Section 1.01 of the Series B Note Agreement is amended by deleting the last sentence thereof in its entirety and replacing it with the following: For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series B Letter of Credit. (d) The definition of "OPINION OF COUNSEL" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "OPINION OF COUNSEL" means a written opinion of counsel who is reasonably acceptable to the Trustee, the Bank, the Placement Agent and Remarketing Agent. The counsel may be an employee of or counsel to the Borrower, the Placement Agent, the Remarketing Agent, the Bank or the Trustee. 2 3 (e) The definition of "REIMBURSEMENT AGREEMENT" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "REIMBURSEMENT AGREEMENT" means, individually and collectively, the Reimbursement Agreement dated as of December 18, 1996, by and among the Borrower and certain subsidiaries of the Borrower, and the Bank, pursuant to which, among other things, the Bank has issued the Series B Letter of Credit, and any and all modifications, alterations, amendments and supplements thereto, and any similar agreements between or among the Borrower and the issuer of a Substitute Series B Letter of Credit or Lender providing credit support to such issuer. (f) The definition of "SERIES B LETTER OF CREDIT" set forth in Section 1.01 of the Series B Note Agreement is amended by (a) deleting the words "Commonwealth of Pennsylvania" in the third line thereof and replacing them with "State of New York" and (b) by deleting the word "L/C Issuer" in the fourteenth line thereof and replacing it with "Bank". (g) Section 1.01 of the Series B Note Agreement is hereby amended by deleting the following definitions thereto: "ACCOUNT PARTIES" means Hanover Direct Pennsylvania, Inc., Hanover Direct Virginia Inc. and Gump's Corp., and their successors and assigns. "L/C ISSUER" means the issuer of the Series B Letter of Credit, initially CoreStates Bank, N.A., and upon the issuance and delivery of a Substitute Series B Letter of Credit, shall mean the issuer of such Substitute Series B Letter of Credit. "LENDER" means Congress Financial Corporation, its successors and assigns, or other lender that refinances the obligations to Lender under the Reimbursement Agreement and replaces all credit support given by Lender to the L/C Issuer in respect of the Series B Letter of Credit or any Substitute Series B Letter of Credit. SECTION 4. AMENDMENT TO SECTION 2.07 OF THE SERIES B NOTE AGREEMENT. Subsection (b) of Section 2.07 of the Series B Note Agreement is amended by deleting the third sentence thereof in its entirety and replacing it with the following: Subject to the provisions of Section 7.09, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, while the 3 4 registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting. SECTION 5. AMENDMENT TO SECTION 2.08 OF THE SERIES B NOTE AGREEMENT. Subsection (a) of Section 2.08 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the sixth line thereof and replacing it with a reference to the "Bank". SECTION 6. AMENDMENT TO SECTION 3.01 OF THE SERIES B NOTE AGREEMENT. Subsection (a)(ii) of Section 3.01 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the second line thereof and replacing it with a reference to the "Bank". It is acknowledged that the purported amendment to Subsection (c) of Section 3.10 of the Series B Note Agreement pursuant to the First Supplemental Series B Note Agreement was a scrivener's error and is of no force and effect. SECTION 7. AMENDMENT TO SECTION 3.04 OF THE SERIES B NOTE AGREEMENT. Section 3.04 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the third line thereof and replacing it with a reference to the "Bank". SECTION 8. AMENDMENT TO SECTION 3.08 OF THE SERIES B NOTE AGREEMENT. Subsection (d)(ii) of Section 3.08 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (ii) All Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series B Letter of Credit) will be registered in the name of the Trustee, as agent and bailee of the Bank and subject to the pledge by the Borrower to the Bank, and shall be held by the Trustee pursuant to this Agreement and the Reimbursement Agreement. Upon receipt of Remarketing Proceeds in respect of Bank Notes, the Remarketing Agent shall notify, the Bank, the Trustee and the Borrower of such receipt. Upon its receipt of such notice, the Bank shall, pursuant to the Reimbursement Agreement, notify the Remarketing Agent and the Trustee by telephone, telecopy or telex, promptly confirmed in writing, that the Series B Notes have ceased to be Bank Notes and that the amount of the Letter of Credit has been automatically reinstated as provided therein, whereupon the Remarketing Agent will remit such Remarketing Proceeds as directed by the Bank. The Trustee shall not release the Bank Notes until it receives from the Bank the notice referred to in the 4 5 preceding sentence. The Remarketing Agent shall hold such Remarketing Proceeds in a segregated account of the Remarketing Agent for the benefit of the Bank, except that if the Series B Letter of Credit is not reinstated by an amount equal to the Remarketing Proceeds, then the Remarketing Agent shall hold such funds for the benefit of the purchasers which provided such Remarketing Proceeds. SECTION 9. AMENDMENTS TO SECTION 4.03 OF THE SERIES B NOTE AGREEMENT. (a) Subsection (c) of Section 4.03 of the Series B Note Agreement is amended by deleting all references to the "Lender" therein and replacing them with references to the "Bank". (b) Subsection (e) of Section 4.03 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the last line thereof and replacing it with a reference to the "Bank". SECTION 10. AMENDMENT TO SECTION 5.02 OF THE SERIES B NOTE AGREEMENT. Subsection (c) of Section 5.02 of the Series B Note Agreement is amended by deleting all references therein to the "Lender" and replacing them with references to the "Bank". SECTION 11. AMENDMENT TO SECTION 5.03 OF THE SERIES B NOTE AGREEMENT. Subsection (b) of Section 5.03 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the last line thereof and replacing it with a reference to the "Bank". SECTION 12. AMENDMENT TO SECTION 5.04 OF THE SERIES B NOTE AGREEMENT. Section 5.04 of the Series B Note Agreement is amended by deleting the second and third paragraphs thereof in their entirety and replacing them with the following: When the Series B Letter of Credit terminates or expires in accordance with its terms or a Substitute Series B Letter of Credit therefor is accepted hereunder, the Trustee shall immediately surrender the Series B Letter of Credit to the Bank. The Trustee hereby agrees that, except in the case of a redemption in part pursuant to Article III hereof or any other reduction in the principal amount of Series B Notes Outstanding, it will not under any circumstances request that the Bank reduce the amount of the Series B Letter of Credit. If at any time, all Series B Notes shall cease to be Outstanding, the Trustee shall surrender the Series B Letter of Credit to the Bank, in accordance with the terms thereof. 5 6 If at any time, the Bank shall fail to honor a draft presented under the Series B Letter of Credit, in conformity with the terms thereof, the Trustee shall give immediate telephonic notice thereof to the Remarketing Agent and the Borrower. SECTION 13. AMENDMENT TO SECTION 7.01 OF THE SERIES B NOTE AGREEMENT. Subsection (d) of Section 7.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (d) Receipt by the Trustee of written notice from the Bank that an Event of Default has occurred under the Reimbursement Agreement accompanied by a demand by the Bank that the Trustee declare the Series B Notes to be immediately due and payable. SECTION 14. AMENDMENTS TO SECTION 7.02 OF THE SERIES B NOTE AGREEMENT. (a) Subsection (a) of Section 7.02 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the second line thereof and replacing it with a reference to the "Bank". (b) Subsection (b) of Section 7.02 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (b) Upon the occurrence of any Event of Default specified in Section 7.01(c), the Trustee shall notify the Bank of such Event of Default and shall, by notice to the Borrower, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent declare the entire unpaid principal of and interest on the Series B Notes immediately due and payable, but only if directed to do so by the Bank, unless the Bank has dishonored a valid draw under the Series B Letter of Credit, in which event the Trustee may declare the entire unpaid principal of and interest on the Series B Notes immediately due and payable and, thereupon, in either case, the entire unpaid principal of and interest on the Series B Notes shall forthwith become due and payable. SECTION 15. AMENDMENT TO SECTION 7.03 OF THE SERIES B NOTE AGREEMENT. Section 7.03 of the Series B Note Agreement is amended (a) by deleting the reference to the "Lender" in the first sentence thereof and replacing it with a reference to the "Bank" and (b) by deleting the second sentence thereof in its entirety and replacing it with the following: 6 7 If such instructions are received by, the Trustee, such draw proceeds and, if necessary, the moneys on deposit in the Interest Reserve Account, shall be immediately applied to the purchase of the Series B Notes, the acceleration of the Series B Notes shall be cancelled, the Series B Notes shall become Bank Notes and the Series B Notes shall be registered in the name of the Trustee, as agent and bailee of the Bank, and pledged under the Reimbursement Agreement as additional security for repayment of the Borrower's obligations under the Reimbursement Agreement. SECTION 16. AMENDMENT TO SECTION 7.05 OF THE SERIES B NOTE AGREEMENT. Section 7.05 of the Series B Note Agreement is amended by deleting the phrase "and the Account Parties" between the words "Borrower" and "to" in the seventh line thereof. SECTION 17. AMENDMENT TO SECTION 7.06 OF THE SERIES B NOTE AGREEMENT. Section 7.06 of the Series B Note Agreement is amended (a) by deleting the references to the "Lender" in the second and fourth lines thereof and replacing therein with references to the "Bank" and (b) by deleting the reference to the "Lender" in the second line of subsection (b) thereof and replacing it with a reference to the "Bank". SECTION 18. AMENDMENT TO SECTION 7.09 OF THE SERIES B NOTE AGREEMENT. It is acknowledged that reference to Section 7.03 in the first line of Section 19 of the First Supplemental Series B Note Agreement entitled "Amendment to Section 7.09 of the Series B Note Agreement" was a scrivener's error and that the correct reference should have been to Section 7.09. Section 7.09 of the Series B Note Agreement is deleted in its entirety and replaced with the following: SECTION 7.09 BANK DEEMED HOLDER. For all purposes of this Article VII (other than receipt of payments), the Bank shall, so long as the Series B Letter of Credit shall not have been dishonored (other than for failure to receive a drawing in strict compliance with the terms thereof or other reason permitted by the Series B Letter of Credit), be deemed the holder and registered owner of all Series B Notes. As such, the Bank may take all actions permitted by this Article VII to be taken by the holders or registered owners of the Series B Notes, to the exclusion of the actual beneficial owners and registered owners of the Series B Notes. NOTWITHSTANDING ANY PROVISION TO THE CONTRARY HEREIN, ON OR AFTER THE EFFECTIVE DATE OF A SUBSTITUTE SERIES B LETTER OF CREDIT WHICH RESULTS IN A CREDIT MODIFICATION, THE BANK, AS ISSUER OF THE SERIES B LETTER OF CREDIT REPLACED BY SUCH SUBSTITUTE SERIES B LETTER OF CREDIT, SHALL BE DEEMED THE "BANK" HEREUNDER FOR PURPOSES OF GIVING NOTICE OF DEFAULT UNDER SECTION 7.01(D) AND FOR 7 8 PURPOSES OF EXERCISING REMEDIES HEREUNDER, BUT ONLY SO LONG AS (I) OBLIGATIONS REMAIN OWING TO THE BANK UNDER THE REIMBURSEMENT AGREEMENT OR THE LOAN DOCUMENTS (AS DEFINED IN THE REIMBURSEMENT AGREEMENT) OR (II) THERE REMAIN OUTSTANDING HEREUNDER ANY BANK NOTES PLEDGED TO THE BANK UNDER THE REIMBURSEMENT AGREEMENT. SECTION 19. AMENDMENT TO SECTION 8.05 OF THE SERIES B NOTE AGREEMENT. Section 8.05 of the Series B Notes Agreement is amended by deleting the references to the "Lender" in the sixth and tenth lines thereof and replacing therein with references to the "Bank". SECTION 20. AMENDMENT TO SECTION 8.08 OF THE SERIES B NOTE AGREEMENT. Section 8.08 of the Series B Note Agreement is amended (a) by deleting all references therein to the "Lender" or "Lenders" and replacing them with references to the "Bank" or "Bank's", as applicable, and (b) by deleting the following sentence after the last paragraph thereof: No resignation or removal of the Trustee shall be binding upon the L/C Issuer for purposes of the Series B Letter of Credit, and no successor Trustee shall have any rights to draw, except upon compliance with the transfer provisions therein set forth. SECTION 21. AMENDMENT TO SECTION 8.10 OF THE SERIES B NOTE AGREEMENT. Section 8.10 of the Series B Note Agreement is amended (a) by deleting all references therein to the "Lender" and replacing them with references to the "Bank" and (b) by deleting the following sentence after the last paragraph thereof: No such resignation or removal of the Remarketing Agent or appointment of or assignment to a successor Remarketing Agent shall be binding upon the L/C Issuer for purposes of the Series B Letter of Credit, unless set forth in an amendment to the Series B Letter of Credit issued by the L/C Issuer. SECTION 22. AMENDMENT TO SECTION 8.11 OF THE SERIES B NOTE AGREEMENT. Subsection (c) of Section 8.11 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the fourth line thereof and replacing it with a reference to the "Bank". SECTION 23. AMENDMENT TO SECTION 8.12 OF THE SERIES B NOTE AGREEMENT. Section 8.12 of the Series B Note Agreement is amended by deleting all references to the "Lender" therein and replacing them with references to the "Bank". SECTION 24. AMENDMENT TO SECTION 8.13 OF THE SERIES B NOTE AGREEMENT. Section 8.13 of the Series B Note Agreement is 8 9 amended by deleting all references to the "Lender" therein and replacing them with references to the "Bank". SECTION 25. AMENDMENT TO SECTION 8.14 OF THE SERIES B NOTE AGREEMENT. Section 8.14 of the Series B Note Agreement is amended by deleting all references to the "Lender" or "Lender's" therein and replacing therein with references to the "Bank" or "Bank's", as applicable. SECTION 26. AMENDMENT TO SECTION 8.16 OF THE SERIES B NOTE AGREEMENT. Section 8.16 of the Series B Note Agreement is amended (a) by deleting the phrase ", to the extent provided in the Reimbursement Agreement," after the word "shall" at the end of the fourth line thereof and (b) by deleting the reference to the "Lender" in the fifth line thereof and replacing it with a reference to the "Bank". SECTION 27. AMENDMENT TO SECTION 9. 01 OF THE SERIES B NOTE AGREEMENT. Subsection (f) of Section 9.01 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the fifth line thereof and replacing it with a reference to the "Bank". SECTION 28. AMENDMENT TO SECTION 9.02 OF THE SERIES B NOTE AGREEMENT. Section 9.02 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the fourteenth line thereof and replacing it with a reference to the "Bank". SECTION 29. AMENDMENT TO SECTION 9.06 OF THE SERIES B NOTE AGREEMENT. The heading and the first sentence of Section 9.06 of the Series B Note Agreement are hereby deleted in their entirety and replaced with the following: Section 9.06. BANK AND REMARKETING AGENT CONSENT REQUIRED. Except to the extent that the consent of the Remarketing Agent or the Bank is not required for the action that is the subject of the amendment (e.g., removal of the Remarketing Agent, the Trustee or the Paying Agent by the Borrower upon the terms specified herein), an amendment to this Agreement or the Series B Notes shall not become effective unless the Remarketing Agent (but only to the extent that such amendment affects the rights, duties or obligations of the Remarketing Agent hereunder) and the Lender deliver to the Trustee their written consents to the amendment. SECTION 30. AMENDMENT TO SECTION 10.01 OF THE SERIES B NOTE AGREEMENT. Subsection (b) of Section 10.01 of the Series B Note Agreement is amended by deleting the reference to, and the address of, the "L/C Issuer" and the "Lender" therein and replacing them with the following: 9 10 If to the Bank: Swiss Bank Corporation New York Branch 222 Broadway New York, New York, 10038 Attention: Telephone No.: Fax No.: SECTION 31. AMENDMENT TO SECTION 10.09 OF THE SERIES B NOTE AGREEMENT. Section 10.09 of the Series B Note Agreement is amended by deleting the reference to the "Lender" in the fourth line thereof and replacing it with a reference to the "Bank". SECTION 32. AMENDMENTS TO EXHIBIT A TO THE SERIES B NOTE AGREEMENT - FORM OF SERIES B NOTE. Exhibit A to the Series B Note Agreement (the "Form of Series B Note") is hereby amended as follows: (a) The second boldface paragraph on the first page of the Form of Series B Note (prior to the text thereof) is hereby deleted in its entirety and replaced with the following: THIS SERIES B NOTE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED BY, SWISS BANK CORPORATION, NEW YORK BRANCH (THE "BANK"), IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ALTHOUGH NOT GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL AND INTEREST ON THIS SERIES B NOTE AND, IF REMARKETING PROCEEDS ARE NOT AVAILABLE, THE PURCHASE PRICE OF THIS SERIES B NOTE, WILL BE MADE FROM DRAWINGS UNDER THE SERIES B LETTER OF CREDIT ISSUED BY THE BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING UNDER THE SERIES B LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER THAN AGAINST THE BANK. (b) The second paragraph of the text of the Form of Series B Note, beginning on page A-2 thereof, is amended by deleting the first sentence thereof and replacing it with the following: This Series B Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series B (the "Series B Notes"), issued pursuant to a Series B Note Agreement dated as of April 27, 1995 (the "Series B Note Agreement"), as amended by the First Supplemental Series B Note Agreement dated December 29, 1995 and the Second Supplemental Note Agreement dated December 18, 1996 between the Borrower and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, for the purpose of refinancing and/or financing certain construction, 10 11 refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series B Note Agreement, the Borrower has caused Swiss Bank Corporation, New York Branch (the "Bank") to issue its irrevocable Series B Letter of Credit dated the Date of Issuance (as hereinafter defined and as set forth above) of the Series B Notes (the "Series B Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series B Facility Amount and unpaid interest on or Purchase Price of the Series B Notes, but not to exceed $9,638,541, pursuant to a Reimbursement Agreement dated as of December 18, 1996 (the "Reimbursement Agreement") by and among the Borrower and the Bank, which Series B Letter of Credit initially expires (subject to extension or earlier termination as provided in the Reimbursement Agreement and the Series B Note Agreement) on February 18, 1998. Substitute letters of credit may be delivered in accordance with the Series B Note Agreement. (c) The seventh paragraph of the text of the Form of Series B Note, beginning on page A-4 thereof, is amended by deleting the third sentence thereof in its entirety and replacing it with the following: Subject to the provisions of Section 7.09 of the Series B Note Agreement relating to the Bank as holder of the Series B Notes, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting, subject to certain qualifications as stated in the Series B Note Agreement. (d) Section 1 of the Form of Series B Note, beginning on page A-5 thereof, is amended by deleting the following definition: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (e) Subsection (f) of Section 3 of the Form of Series B Note, beginning on page A-9 thereof, is amended by deleting the reference to the "Lender" in the third line thereof and replacing it with a reference to the "Bank." 11 12 (f) Subsection (a) of Section 4 of the Form of Series B Note, beginning on page A-10 thereof, is amended by deleting the reference to the "Lender" in the fourth line of the last paragraph thereof and replacing it with a reference to the "Bank." (g) Section 7 of the Form of Series B Note, beginning on page A-13 thereof, is amended by deleting the second sentence of the first paragraph thereof in its entirety and replacing them with the following: The Series B Note Agreement directs the Trustee to declare an acceleration upon written notice by the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement and upon the occurrence of certain other Events of Default under the Series B Note Agreement. The Trustee has the right to accelerate the entire unpaid principal of and interest on the Series B Notes in certain events only with the Bank's consent, all as provided in more detail in Article VII of the Series B Note Agreement to which reference is hereby made. SECTION 33. DELETION OF EXHIBIT C TO SERIES B NOTE AGREEMENT. The Series B Note Agreement is amended by deleting Exhibit C thereto. SECTION 34. EFFECT OF SECOND SUPPLEMENTAL SERIES B NOTE AGREEMENT. Except as modified hereby, all of the terms and provisions of the Series B Note Agreement shall remain in full force and effect. SECTION 35. GOVERNING LAW. This Second Supplemental Series B Note Agreement and the Series B Note Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. SECTION 36. SEVERABILITY. If any provision of this Second Supplemental Series B Note Agreement shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this Second Supplemental Series B Note Agreement. SECTION 38. COUNTERPARTS. This Agreement may be signed in several counterparts, each of which will be an original and all of which together will constitute the same instrument. [Signatures on following page.] 12 13 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Series B Note Agreement to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien -------------------------------- Name: Edward J. O'Brien ------------------------------ Title: Senior Vice President ----------------------------- [CORPORATE SEAL] NORWEST BANK MINNESOTA, N.A. as Trustee and Paying Agent By: /s/ Marianna C. Sterson -------------------------------- Name: Marianna C. Sterson ------------------------------ Title: Corporate Trust Officer ----------------------------- 13 EX-10.62 25 FIRST AMENDMENT TO SERIES A NOTE 1 Exhibit 10.62 FIRST AMENDMENT TO SERIES A NOTE This FIRST AMENDMENT TO SERIES A NOTE dated as of December 29, 1995, is made by HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), with the consent of Norwest Bank Minnesota, N.A., as trustee and paying agent (the "Trustee" or the "Paying Agent", as applicable); W I T N E S S E T H: WHEREAS, the Borrower and the Trustee entered into the Series A Note Agreement dated as of November 9, 1994, as amended pursuant to that certain First Supplemental Series A Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series A Note Agreement") pursuant to which the Borrower issued and sold its interest bearing Flexible Term Notes, Series A (the "Series A Notes") in the aggregate principal amount of $10,000,000 and in the form of Series A Note R-1, registered in the name of Cede & Co. (as defined in the Series A Note Agreement) and deposited with the Paying Agent ("Series A Note R-1"); and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series A Letter of Credit in substitution for the Series A Letter of Credit (each as defined in the Series A Note Agreement); and WHEREAS, in order to more fully evidence the delivery of the Substitute Series A of Letter of Credit referenced above, the Borrower and the Trustee desire to amend Series A Note R-1, subject to the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used in this First Amendment to Series A Note and not otherwise herein defined shall have the meaning ascribed to them in the Series A Note Agreement. SECTION 2. AMENDMENTS TO SERIES A NOTE R-1. Series A Note R-1 is hereby amended as follows: (a) The second boldface paragraph on the first page of Series A Note R-1 (prior to the text thereof) is hereby deleted in its entirety and replaced with the following: PAYMENTS OF PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THIS SERIES A NOTE WILL BE MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT 2 (HEREINAFTER DEFINED) IF REMARKETING PROCEEDS ARE NOT AVAILABLE OR IF AN EVENT OF DEFAULT HAS OCCURRED. ALTHOUGH THE SERIES A LETTER OF CREDIT IS A BINDING OBLIGATION OF CORESTATES BANK, N.A. (THE "L/C ISSUER"), THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF CORESTATES FINANCIAL CORP OR ANY OF ITS AFFILIATES, INCLUDING THE L/C ISSUER AND CONGRESS FINANCIAL CORPORATION, NOR IS THIS SERIES A NOTE A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS, INCLUDING NATIONSBANK, N.A., AND THIS SERIES A NOTE IS NOT GUARANTEED BY ANY OF THESE ENTITIES. THIS SERIES A NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO CERTAIN INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. (b) The second paragraph of the text of Series A Note R-1, beginning on page 2 thereof, is amended by deleting the first two sentences thereof and replacing them with the following: This Series A Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A Notes"), issued pursuant to a Series A Note Agreement dated as of November 9, 1994, between the Borrower, and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, as amended by that certain First Supplemental Series A Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series A Note Agreement"), for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility owned and used by certain subsidiaries of the Borrower located in Roanoke, Virginia and a new retail store of Gump's Corp., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series A Note Agreement, the Borrower has arranged, through a credit facility established with Lender for certain of Borrower's subsidiaries, and as guarantor of such financing arrangements with Lender, for L/C Issuer to issue for the account of such subsidiaries its irrevocable Series A Letter of Credit dated December 29, 1995 (the "Series A Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series A Facility Amount and unpaid interest on or Purchase Price of the Series A Notes, but not to exceed $10,145,833, pursuant to (a) the Application for Irrevocable Standby Letter of Credit dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties (as defined in the Series A Note Agreement) and the Lender requesting the issuance by the L/C Issuer of the Series A Letter of Credit (the "Application"), (b) the Loan and Security Agreement dated 2 3 as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender, acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the Application pursuant to which the Series A Letter of Credit is issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series A Letter of Credit or lender providing credit support to such issuer (individually and collectively, the "Reimbursement Agreement"). (c) The seventh paragraph of the text of Series A Note R-1, beginning on page 4 thereof, is amended by deleting the third sentence thereof in its entirety and replacing it with the following: The Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series A Notes, (ii) notices and (iii) voting. (d) Section 1 of Series A Note R-1, beginning on page 5 thereof, is amended by adding the following definition: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (e) Subsection (f) of Section 3 of Series A Note R-1, beginning on page 9 thereof, is amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender." (f) Subsection (a) of Section 4 of Series A Note R-1, beginning on page 10 thereof, is amended by deleting the reference to the "Bank" in the fourth line of the last paragraph thereof and replacing it with a reference to the "Lender." (g) Section 7 of Series A Note R-1, beginning on page 13 thereof, is amended by deleting the second and third sentences of the first paragraph thereof in their entirety and replacing them with the following: The Series A Note Agreement directs the Trustee to declare an acceleration upon written notice by the Lender of the occurrence and continuance of an event of default under the Reimbursement Agreement and upon the occurrence of certain other Events of Default under the Series A Note Agreement. SECTION 3. EFFECT OF FIRST AMENDMENT TO SERIES A NOTE; NO NOVATION. Except as modified hereby, all of the terms and provisions of Series A Note R-1 shall remain in full force 3 4 and effect. This First Amendment to Series A Note amends Series A Note R-1 and shall not be construed to constitute a novation thereof in any manner whatsoever. SECTION 4. GOVERNING LAW. This First Amendment to Series A Note and Series A Note R-1, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. SECTION 5. SEVERABILITY. If any provision of this First Amendment to Series A Note shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this First Amendment to Series A Note. [Signatures on following page] 4 5 IN WITNESS WHEREOF, the Borrower has caused this First Amendment to Series A Note to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien _______________________________ Name: Edward J. O'Brien _____________________________ Title: Executive Vice President ____________________________ & Treasurer ____________________________ [CORPORATE SEAL] 5 6 CONSENT TO FIRST AMENDMENT TO SERIES A NOTE Norwest Bank Minnesota, N.A., as Paying Agent, hereby consents to the amendments to Series A Note R-1 provided for herein. NORWEST BANK MINNESOTA, N.A., as Trustee and Paying Agent By: _______________________________ Name: _____________________________ Title: ____________________________ 6 EX-10.63 26 $10,000,000 SERIES B NOTE DATED APRIL 27, 1995 1 THIS SERIES B NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE REGULATORY AUTHORITY UNDER ANY STATE SECURITIES LAWS AND THEREFORE CANNOT BE RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACT OR APPLICABLE LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. PAYMENTS OF PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THIS NOTE WILL BE MADE FROM DRAWINGS UNDER THE LETTER OF CREDIT ISSUED BY NATIONSBANK, N.A. (CAROLINAS) (THE "BANK") IF REMARKETING PROCEEDS ARE NOT AVAILABLE OR IF AN EVENT OF DEFAULT HAS OCCURRED. ALTHOUGH THE LETTER OF CREDIT IS A BINDING OBLIGATION OF THE BANK, THIS NOTE IS NOT A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS AND IS NOT GUARANTEED BY ANY OF THESE ENTITIES. THIS NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO CERTAIN INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. REGISTERED REGISTERED No. R-1 $10,000,000.00 HANOVER DIRECT, INC. FLEXIBLE TERM NOTES, SERIES B INTEREST RATE MATURITY DATE DATE OF ISSUANCE As Described October 1, 2009 April 27, 1995 REGISTERED OWNER: Cede & Co. PRINCIPAL AMOUNT: Ten Million Dollars ($10,000,000.00) Hanover Direct, Inc., a Delaware corporation (the "Borrower"), for value received, hereby promises to pay, solely from the sources and in the manner hereinafter provided, to the registered owner, or registered assigns or legal representative, upon presentation and surrender hereof at the principal corporate trust office of Norwest Bank Minnesota, N.A., or its successor (in such capacity, the "Paying Agent"), or by wire transfer, as provided in the Series B Note Agreement, as hereinafter defined, the principal sum set forth above on the Maturity Date set forth above, subject to the prior mandatory or optional redemption of this Series B Note as hereinafter provided, and to pay solely from such source interest hereon at the Interest Rate, as hereinafter defined, payable in arrears on the Interest Payment Date, as hereinafter defined, until payment in full and, to the extent permitted by law, interest on overdue installments of such interest, from the Interest Payment Date applicable to this Series B Note next preceding the date on which this Series B Note is authenticated, unless this Series B Note is (a) authenticated before the first Interest Payment Date following the initial delivery 2 of the Series B Notes issued herein, in which case it shall bear interest from the date of such initial delivery or (b) authenticated upon an Interest Payment Date, in which case it shall bear interest from such Interest Payment Date (unless interest on this Series B Note is in default at the time of authentication, in which case this Series B Note shall bear interest from the last date to which interest has been paid). Except as otherwise provided in the Series B Note Agreement, interest hereon shall be paid to the person in whose name this Series B Note is registered on the register of the Paying Agent at the close of business on the Record Date next preceding each Interest Payment Date, by check or draft mailed to such person at his address as it appears on the register maintained by the Paying Agent, or by wire transfer for holders of an aggregate principal amount of at least $500,000, at the request of such holders, as provided in the Series B Note Agreement. Principal and Purchase Price, as hereinafter defined, of and interest on this Series B Note are payable in lawful currency of the United States of America. If any payment hereon is due on a day which is not a Business Day, as hereinafter defined, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the day such payment was due and, in the case of such payment, no interest shall accrue for the intervening period. This Series B Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series B (the "Series B Notes"), issued pursuant to a Series B Note Agreement dated as of April 27, 1995 (the "Series B Note Agreement"), between the Borrower and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series B Note Agreement, the Borrower has caused NationsBank, N.A. (Carolinas) (the "Bank") to issue its irrevocable Series B Letter of Credit dated the Date of Issuance (as hereinafter defined and as set forth above) of the Series B Notes (the "Series B Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series B Facility Amount and unpaid interest on or Purchase Price of the Series B Notes, but not to exceed $10,145,833, pursuant to a Credit Facilities and Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement Agreement") by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement, including the Bank, and the Bank, as agent, which Series B Letter of Credit initially expires (subject to extension or earlier termination as provided in the Reimbursement Agreement and the Series B Note Agreement) on April 27, 1998. Substitute letters of credit may be delivered in accordance with the Series B Note Agreement. The Trustee is authorized and directed pursuant to the Series B Note Agreement to make timely draws under the Series B Letter of Credit in accordance with the terms thereof, to the extent necessary to make when due the payments of principal of (whether on the Maturity Date referenced above, by acceleration, or by call for redemption), the Purchase Price of and interest on the Series B Notes, except as otherwise provided in the Series B Note Agreement and the Series B Letter of Credit. Reference is hereby made to the Series B Note Agreement, the Series B Letter of Credit, the Reimbursement Agreement and to all amendments and supplements thereto for a description of the provisions, among others, with 2 3 respect to the nature and extent of the security, the default provisions, the rights, duties and obligations of the Borrower and the Trustee and the rights of the holders of the Series B Notes and the terms upon which the Series B Notes are issued and secured. The Series B Notes are issuable in registered form without coupons in denominations of $100,000 or any integral multiple of $100,000 in excess thereof (the "Authorized Denominations"). This Series B Note, upon surrender hereof at the principal corporate trust office of the Paying Agent with a written instrument of transfer satisfactory to the Paying Agent duly endorsed for transfer or accompanied by an assignment duly executed by the holder hereof or his attorney duly authorized in writing and, in either case, with an appropriate guarantee of signature conforming to the requirements of the assignment attached hereto, may, at the option of the holder hereof, be exchanged for Series B Notes of the same aggregate principal amount and tenor as the Series B Notes being exchanged and of any Authorized Denomination. This Series B Note is transferable as provided in the Series B Note Agreement, subject to certain limitations therein contained, only upon the register of the Paying Agent, and only upon surrender of this Series B Note for transfer to the Paying Agent duly endorsed for transfer or accompanied by a written instrument of transfer (in substantially the form of the assignment attached hereto) duly executed by the holder hereof or his duly authorized attorney. Thereupon, one or more new Series B Notes of any Authorized Denomination or Authorized Denominations and in the same aggregate principal amount and tenor as the Series B Note surrendered will be issued to the designated transferee or transferees. The person in whose name this Series B Note is registered shall be deemed and regarded as the absolute owner hereof for any purpose, as provided in and as qualified by the Series B Note Agreement. The Paying Agent or NationsBank, N.A. (Carolinas) (formerly NationsBank of North Carolina, N.A.), as Remarketing Agent (the "Remarketing Agent"), may make appropriate arrangements for some or all of the Series B Notes to be issued or held by means of a book-entry system administered by a Securities Depository, as hereinafter defined, with no physical distribution of Series B Notes made to the public (other than those Series B Notes, if any, not held under such book-entry system). Initially, all of the Series B Notes will be held by means of a book-entry system administered by the Securities Depository. One Series B Note certificate in registered form will be issued for the Series B Notes in the aggregate principal amount of $10,000,000, and will be registered in the name of the Securities Depository Nominee and will be deposited with the Paying Agent. Thereafter, in the event that Series B Notes are issued to the Beneficial Owners thereof in certificated (physical) form (and in each and every case thereafter in which a change in the principal amount of Series B Notes held pursuant to a book-entry system is made), the Paying Agent will take all actions necessary to comply with the Balance Certificate Agreement dated as of the date hereof between Norwest Bank Minnesota, N.A., as transfer agent, and the Securities Depository, which agreement governs 3 4 the mechanisms for the registration of transfer of Series B Note certificates registered in the name of the Securities Depository Nominee. With respect to any Series B Notes that are held by means of a book-entry system, such book-entry system will evidence beneficial ownership of the Series B Notes so held in Authorized Denominations (or, as applicable, positions held by the Participants, beneficial ownership being evidenced in the records of such Participants). Registration and transfers of ownership shall be effected on the records of the Securities Depository and the Participants, as applicable, pursuant to rules and procedures established by the Securities Depository and the Participants. Subject to the provisions of Section 7.09 of the Series B Note Agreement relating to the Bank as holder of the Series B Notes, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting, subject to certain qualifications as stated in the Series B Note Agreement. Transfer of principal, interest and Purchase Price payments to beneficial owners of the Series B Notes so held will be the responsibility of the Securities Depository and the Participants. The Borrower, the Trustee, the Bank and the Paying Agent will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by the Securities Depository, the Securities Depository Nominee or the Participants. While the Securities Depository Nominee is the owner of the Series B Notes so held, notwithstanding the provision hereinabove contained, payments of principal and Purchase Price of and interest on such Series B Notes shall be made in accordance with the Letter of Representations dated as of April 27, 1995 among the Borrower, the Trustee, the Remarketing Agent and Paying Agent and received and accepted by the Securities Depository. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE AND TRANSFER OF OWNERSHIP IS MAINTAINED WITH RESPECT TO THIS SERIES B NOTE IN ACCORDANCE WITH THE TERMS OF THE SERIES B NOTE AGREEMENT, (1) THE PROVISIONS OF THIS SERIES B NOTE RELATING TO THE DELIVERY OF PHYSICAL SERIES B NOTES SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED WITH REGARD TO THIS SERIES B NOTE AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM AND (2) THE PROVISIONS OF THIS SERIES B NOTE RELATING TO ISSUANCE, PAYMENTS OF PRINCIPAL, PURCHASE PRICE AND INTEREST, AND ESTABLISHMENT OF INTEREST RATES AND INTEREST PERIODS WITH RESPECT TO THE SERIES B NOTES SHALL BE APPLICABLE TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES B NOTES IN AUTHORIZED DENOMINATIONS TO THE SAME EXTENT AS SUCH PROVISIONS ARE APPLICABLE TO REGISTERED OWNERSHIP INTERESTS IN THE SERIES B NOTES. 4 5 In the event that a book-entry system of evidence and transfer of ownership of the Series B Notes is discontinued pursuant to the provisions of the Series B Note Agreement, the Series B Notes shall be delivered solely in registered form without coupons in the Authorized Denominations, shall be lettered "R" and numbered separately from 1 upward, and shall be payable, executed, authenticated, registered, exchanged and cancelled pursuant to the provisions hereof and of the Series B Note Agreement. All references herein to time shall be Charlotte, North Carolina time unless otherwise expressly stated herein. Except as otherwise specifically provided herein, all capitalized words and terms shall have the same meaning when used herein as set forth in the Series B Note Agreement. 1. CERTAIN DEFINITIONS. "BENEFICIAL OWNER" or "BENEFICIAL OWNER" means the holder of the beneficial ownership interest in each Series B Note as evidenced on (i) if such Series B Note is held pursuant to a book-entry system, the books maintained by the Securities Depository (and, as applicable, its participants or persons acting through such participants), as more fully described in the Letter of Representations, or (ii) if such Series B Note is not held pursuant to a book-entry system, the register maintained by the Paying Agent. "BUSINESS DAY" means any day other than (a) Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or in the city or cities in which the corporate trust office of the Trustee or the Paying Agent, the primary office of the Remarketing Agent or the Placement Agent or the paying office of the Bank are authorized by law or executive order to close or (c) a day on which the New York Stock Exchange is closed. For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series B Letter of Credit. "DATE OF ISSUANCE" means the date upon which the Series B Notes are issued, authenticated and delivered in accordance with the terms and conditions of Section 2.06 of the Series B Note Agreement. "INTEREST PAYMENT DATE" means the first day after the last day of each Interest Period. "INTEREST PERIOD" means, with respect to any Series B Note, each period of between one (1) and one hundred eighty (180) days established from time to time by the Remarketing Agent in accordance with the Interest Period determination method described in Section 2.02(a) of the Series B Note Agreement. 5 6 "INTEREST RATE" means, with respect to any Series B Note, the interest rate on such Series B Note determined from time to time by the Remarketing Agent in accordance with the Interest Rate determination method described in Section 2.02(a) of the Series B Note Agreement. In no event shall the Interest Rate exceed the lesser of fifteen percent (15%) per annum or the highest interest rate which may be borne by the Series B Notes under applicable law. "PARTICIPANTS" means securities brokers and dealers, banks, trust companies and clearing corporations which have access to the Securities Depository's system. "PURCHASE DATE" means, with respect to any Series B Notes, the date on which such Series B Notes are required to be purchased pursuant to the terms and conditions of Section 3.07(a) of the Series B Note Agreement. "PURCHASE PRICE" means an amount equal to 100% of the principal amount of any Series B Note tendered or deemed tendered to the Trustee for purchase pursuant to the terms and conditions of Section 3.07 of the Series B Note Agreement, plus accrued and unpaid interest thereon to, but excluding, the Purchase Date. "RECORD DATE" means, with respect to each Interest Payment Date, the Trustee's close of business on the Business Day next preceding such Interest Payment Date. "SECURITIES DEPOSITORY" means, initially, The Depository Trust Company, or any successor or substitute securities depository selected by the Borrower (with the consent of the Trustee and the Remarketing Agent), which shall maintain a book-entry system in respect of the Series B Notes. "SECURITIES DEPOSITORY NOMINEE" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the register maintained by the Paying Agent the Series B Note certificate to be delivered to and immobilized with the Paying Agent during continuation with such Securities Depository of participation in its book-entry system, and shall initially be Cede & Co., nominee of The Depository Trust Company. 2. INTEREST ON THE SERIES B NOTES. The Series B Notes will bear interest at the Interest Rate from the Date of Issuance until paid in full. Interest accrued on each Series B Note shall be paid on the applicable Interest Payment Date therefor. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed over a year of 360 days. The initial Interest Period and corresponding Interest Rate for each Series B Note will be determined by the Remarketing Agent on the Date of Issuance. After the initial determination of the Interest Period and corresponding Interest Rate, the applicable Interest Period and corresponding Interest Rate shall be determined by the Remarketing Agent 6 7 at the time and in the manner specified in Section 2.02 of the Series B Note Agreement. The Remarketing Agent's determination of the Interest Periods and Interest Rates shall be conclusive and binding on the Noteholders, the Paying Agent, the Remarketing Agent, the Borrower, the Bank and the Trustee. The Remarketing Agent will notify the Paying Agent in writing (which may be in telecopy form) or by telephone promptly confirmed in writing by 10:00 a.m. on the first Business Day of each Interest Period with respect to any Series B Note, of the identity of such Series B Note, the length of such Interest Period, the Interest Rate therefor and the principal amount of such Series B Note, and, upon the request of the Borrower or the Bank, the Paying Agent shall promptly (but in no event later than the end of such Business Day) after its receipt of such information, forward such information to the Borrower and the Bank. The failure by the Remarketing Agent or the Paying Agent, as applicable, to give any such notice shall not affect the change in the Interest Period and/or Interest Rate. The calculation of interest payable on the Series B Notes as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders, absent manifest error. Neither the Remarketing Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Trustee, the Paying Agent, the Bank or any Noteholder for any action taken or not taken by the Remarketing Agent or any of its directors, officers, agents or employees in connection with the determination of the Interest Period and Interest Rate for each Series B Note pursuant to the Series B Note Agreement, in the absence of its own negligence or willful misconduct. 3. REDEMPTION OF SERIES B NOTES. (a) OPTIONAL REDEMPTION. The Series B Notes are subject to redemption at the option of the Borrower, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date; provided that any such redemption in part shall be in a minimum principal amount of $100,000. (b) MANDATORY SINKING FUND REDEMPTION. The Series B Notes are subject to mandatory sinking fund redemption prior to the Maturity Date, in part, with the Series B Notes to be redeemed being selected pursuant to Section 3.03 of the Series B Note Agreement, at a redemption price equal to the principal amount thereof, on October 1, or if any such date is not a Business Day, on the next succeeding Business Day with the same force and effect, in the years and in the principal amounts indicated below: 7 8
REDEMPTION DATE PRINCIPAL (OCTOBER 1) AMOUNT ----------- ------ 1996 $500,000 1997 500,000 1998 500,000 1999 500,000 2000 800,000 2001 800,000 2002 800,000 2003 800,000 2004 800,000 2005 800,000 2006 800,000 2007 800,000 2008 800,000 2009 800,000
(c) MANDATORY REDEMPTION ON EXPIRATION OR TERMINATION OF SERIES B LETTER OF CREDIT WITHOUT EXTENSION OR PROVIDING A SUBSTITUTE SERIES B LETTER OF CREDIT. The Series B Notes are subject to mandatory redemption in whole on the fifth (5th) Business Day prior to the stated date of expiration or termination of the Series B Letter of Credit, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date, unless by the twentieth (20th) day prior to such redemption date the Borrower provides to the Trustee, and the Trustee has accepted, (1) evidence that such Series B Letter of Credit has been extended or (2) a Substitute Series B Letter of Credit to be effective on or prior to such redemption date. (d) REDEMPTION DATE. The redemption date for Series B Notes to be redeemed as described in paragraph 3(a) above must be an Interest Payment Date with respect to the Series B Notes being redeemed. The redemption date for mandatory redemptions will be as specified in paragraph 3(b) or (c) above, as the case may be, or determined by the Trustee or the Remarketing Agent consistently with the provisions thereof and of the Series B Note Agreement. (e) SELECTION OF SERIES B NOTES TO BE REDEEMED. Except as otherwise provided herein or in Section 3.03 of the Series B Note Agreement, if fewer than all the Series B Notes are to be redeemed, the Remarketing Agent will select the Series B Notes to be redeemed by lot or such other method as it deems in its sole discretion to be fair and appropriate and shall notify the Paying Agent (which notice may be provided by telephone, immediately confirmed in writing by legible facsimile transmission, registered or certified mail, overnight express delivery, or other secure means) of the holders and denominations of Series B Notes to be redeemed; provided, however, that in selecting Series B Notes to be redeemed the Remarketing Agent shall (i) select only Series B Notes not previously called for 8 9 redemption, (ii) select Bank Notes prior to any other Series B Notes, and (iii) with respect to any mandatory sinking fund redemption as described in paragraph 3(b) above, select the Series B Notes to be redeemed on or before the sixtieth (60th) day prior to the redemption date, and in making such selection take into account the duration of the Interest Periods with respect to such Series B Notes. In the event the Remarketing Agent fails to notify the Paying Agent of the Series B Notes to be redeemed on or before the ninth (9th) Business Day prior to the redemption date, the Paying Agent shall proceed to select Series B Notes for redemption from among the Outstanding Series B Notes in the chronological order in which their Purchase Dates occur, beginning with the earliest Purchase Date; provided, however, that in selecting Series B Notes to be redeemed the Paying Agent shall (i) select only Series B Notes not previously called for redemption and (ii) select Bank Notes prior to any other Series B Notes. If fewer than all Series B Notes having the same Purchase Date (selected for redemption as provided in the immediately preceding sentence) are to be redeemed, the Paying Agent shall treat each owner of Series B Notes as the owner of one Series B Note for purposes of selection for redemption, and shall select Series B Notes for redemption by lot or such other method as it deems fair and appropriate, (1) from among the holders of less than $1,000,000 in aggregate principal amount, provided that if there are no such holders, or if, after selection from among such holders such selection has not resulted in redemption of a sufficient amount of Series B Notes, then (2) from among the holders of $1,000,000 or more in aggregate principal amount of Series B Notes. No portion of a Series B Note may be redeemed that would result in a Series B Note which is smaller than the then permitted minimum Authorized Denomination. For this purpose, the Remarketing Agent or the Paying Agent will consider each Series B Note in a denomination larger than the minimum denomination permitted by the Series B Notes at the time to be separate Series B Notes each in the minimum denomination. (f) NOTICE OF REDEMPTION. The Trustee will prepare and cause the Paying Agent to send notice of each redemption to each Noteholder whose Series B Notes are being redeemed, the Borrower, the Remarketing Agent and the Bank by first-class mail at least seven (7) Business Days but not more than sixty (60) (or twenty (20), in the case of a mandatory redemption pursuant to paragraph 3(c) above) days before each redemption. The notice shall identify the Series B Notes or portions thereof to be redeemed and will state: (i) the type of redemption and the redemption date, (ii) the redemption price, (iii) that the Series B Notes called for redemption must be surrendered to collect the redemption price, (iv) the address of the Paying Agent at which the Series B Notes must be surrendered, (v) that interest on the Series B Notes called for redemption ceases to accrue on the redemption date, (vi) the CUSIP number of the Series B Notes called for redemption and (vii) any condition to the redemption. Failure by the Trustee or the Paying Agent to give any notice of redemption as to any particular Series B Notes will not affect the validity of the call for redemption of any Series B Notes in respect of which no such failure has occurred. Any notice mailed as provided in the Series B Notes will be conclusively presumed to have been given whether or 9 10 not actually received by any holder or beneficial owner. (g) EFFECT OF REDEMPTION. On the date fixed for redemption, notice having been given in the manner and under the conditions provided in the Series B Note Agreement, the Series B Notes or portions thereof called for redemption shall be due and payable at the redemption price provided therefor, plus accrued interest to such date. On such redemption date, if moneys sufficient to pay the redemption price of the Series B Notes to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Paying Agent, interest on the Series B Notes called for redemption shall cease to accrue; such Series B Notes shall cease to be entitled to any benefits or security under the Series B Note Agreement or to be deemed Outstanding; and the holders and beneficial owners of such Series B Notes shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to, but excluding, the date of redemption. (h) SERIES B NOTES REDEEMED IN PART. Upon surrender of a Series B Note redeemed in part, the Paying Agent will authenticate for the holder a new Series B Note or Series B Notes equal in principal amount to the unredeemed portion of the Series B Note surrendered. 4. PURCHASE OF SERIES B NOTES. (a) MANDATORY PURCHASE OF SERIES B NOTES; NOTICE. Except as provided in paragraph 4(c) below, Series B Notes are subject to mandatory purchase at the Purchase Price: (i) on each Interest Payment Date applicable to such Series B Note; and (ii) on the effective date of any Substitute Series B Letter of Credit delivered in accordance with the terms and conditions of the Series B Note Agreement, if, but only if, such Substitute Series B Letter of Credit will result in a Credit Modification. The Trustee will prepare and cause the Paying Agent to send written notice of each mandatory purchase described in paragraph 4(a)(ii) above (a "Notice of Mandatory Purchase") to each Noteholder whose Series B Notes are being purchased, the Remarketing Agent, the Bank and the Borrower at least 15 days but not more than 60 days before the Purchase Date. No Notice of Mandatory Purchase will be given to holders or beneficial owners of Series B Notes if the mandatory purchase is being made as described in paragraph 4(a)(i) above. (b) PAYMENT FOR PURCHASED SERIES B NOTES. The Purchase Price of Series B Notes to be purchased on a Purchase Date shall be paid from Remarketing Proceeds available to pay the Purchase Price of such Series B Notes and, to the extent Remarketing Proceeds are not available to pay the Purchase Price of such Series B Notes, from proceeds of 10 11 a draw on the Series B Letter of Credit pursuant to the applicable provisions of Section 5.02(a)(iv) of the Series B Note Agreement. To the extent that sufficient moneys have been made available therefor to the Paying Agent or the Remarketing Agent, as applicable, by 1:45 p.m. on the Purchase Date pursuant to Sections 3.08 and 5.02 of the Series B Note Agreement, upon surrender to the Paying Agent of Series B Notes called for mandatory purchase as provided in the Series B Note Agreement, the Purchase Price therefor shall be paid in immediately available funds by the Paying Agent's or the Remarketing Agent's, as applicable, close of business on the Purchase Date. From and after the Purchase Date or, if later, the date on which such moneys are made available to the Paying Agent or the Remarketing Agent, as applicable, interest accruing on such Series B Notes shall cease to be payable to the prior holder thereof, such Series B Notes shall cease to be entitled to the benefits of the Series B Note Agreement and to such extent the prior holder shall have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of such Series B Notes as provided in Section 4.03 of the Series B Note Agreement. Notwithstanding any provision to the contrary herein or in the Series B Note Agreement, for so long as the Series B Notes are held pursuant to a book-entry system maintained by DTC, payments of Purchase Price with respect to such Series B Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) LIMITATION ON TENDERS. The holders shall not be required to tender any Series B Note for purchase on a Purchase Date if on such date, following the occurrence of an Event of Default, the Trustee shall have declared the principal of and interest on the Series B Notes immediately due and payable pursuant to Section 7.02 of the Series B Note Agreement. (d) In the event that any Series B Note purchased pursuant to a mandatory purchase is not delivered by the holder thereof on the date such Series B Note is purchased, the Borrower shall execute (if necessary) and the Paying Agent will authenticate and deliver a new Series B Note of like aggregate principal amount as the Series B Note purchased, the Series B Note purchased shall no longer be deemed outstanding and the owner thereof shall be entitled to receive only those funds held on deposit with respect thereto, and the new Series B Note shall, for all purposes of the Series B Note Agreement, be deemed to evidence the same debt as the Series B Note purchased and shall be remarketed, delivered and registered in accordance with the terms of this Series B Note and the Series B Note Agreement. 5. REMARKETING OF PURCHASED SERIES B NOTES. (a) REMARKETING EFFORT. Except as otherwise provided in Section 3.08(a) of the Series B Note Agreement, the Remarketing Agent will use reasonable best efforts to remarket on the Purchase Date all Series B Notes purchased in accordance with the terms of Section 3.07 of the Series B Note Agreement and, to the extent such purchased Series B Notes are not remarketed on the Purchase Date, thereafter will continue to use reasonable best efforts to remarket such purchased Series B Notes, upon the terms and subject to the 11 12 conditions of the Remarketing Agreement. (b) REMARKETING PROCEEDS. To the extent the Remarketing Agent has remarketed Series B Notes and has received funds representing a payment for such Series B Notes (the "Remarketing Proceeds") from the purchasers thereof, the Remarketing Agent will promptly forward the Remarketing Proceeds by wire transfer (or in such other manner as is acceptable to the Remarketing Agent) to the holders tendering such Series B Notes for purchase (or, if required pursuant to Section 3.08(b) of the Series B Note Agreement, to the Paying Agent). Except as otherwise provided below with respect to Bank Notes, until such transfer, all such Remarketing Proceeds shall be deposited in a separate, segregated account of the Remarketing Agent (or, if transferred to the Paying Agent as provided in the Series B Note Agreement, in a separate, segregated account of the Paying Agent) for application in accordance with the applicable provisions of Section 3.08(b) of the Series B Note Agreement, and until so applied shall be held in trust for the benefit of the holders tendering such Series B Notes for purchase. Notwithstanding any provision to the contrary herein or in the Series B Note Agreement, for so long as the Series B Notes are held pursuant to a book-entry system maintained by DTC, payments of Remarketing Proceeds with respect to such Series B Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) DELIVERY OF PURCHASED SERIES B NOTES. Series B Notes purchased with Remarketing Proceeds (other than Bank Notes) shall be delivered to the purchasers thereof upon receipt of payment therefor. Prior to such delivery, the Paying Agent shall provide for registration of transfer to the Holders, as provided in a written notice from the Remarketing Agent. 6. MONEYS TO BE HELD IN TRUST. All proceeds of a draw on the Series B Letter of Credit received by the Trustee and all money that the Trustee or the Paying Agent shall hold in, or shall have withdrawn from, the Series B Letter of Credit Fund or shall have received from any other source and set aside for the purpose of paying any of the Series B Notes, either on the Maturity Date set forth above or by purchase (other than as provided in Section 3.08 of the Series B Note Agreement regarding remarketing of Series B Notes) or call for redemption or for the purpose of paying any interest on the Series B Notes, shall be held in trust for the respective holders or beneficial owners of the Series B Notes. Moneys received by the Remarketing Agent, the Paying Agent or the Trustee from the sale of a Series B Note under Section 3.08 of the Series B Note Agreement regarding remarketing of Series B Notes or from the purchase of any Series B Note will be held segregated from other funds held by the Remarketing Agent, the Paying Agent or the Trustee for the benefit of the Person from whom such Series B Note was purchased and will not be invested while so held. Any money that is so set aside and that remains unclaimed by the holders or beneficial owners for a period of five (5) years after the date on which such Series B Notes have become payable shall be remitted to the Borrower and thereafter the holders or beneficial owners shall look only to the Borrower for payment and then only to the extent of the amounts so received, without any interest thereon, and the Trustee, the Remarketing Agent, the Paying Agent and the Bank shall have no responsibility with respect to such money. 12 13 7. DEFAULTS AND REMEDIES. Upon the occurrence of certain events, and on the conditions, in the manner and with the effect set forth in Article VII of the Series B Note Agreement, the principal of all Series B Notes then outstanding under the Series B Note Agreement may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Series B Note Agreement directs the Trustee to declare an acceleration upon notice by the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement, and upon the occurrence of certain other Events of Default under the Series B Note Agreement. The Trustee has the right to accelerate the entire unpaid principal of and interest on the Series B Notes in certain events only with the Bank's consent, all as provided in more detail in Article VII of the Series B Note Agreement to which reference is hereby made. The owner of this Series B Note shall have no right to enforce the provisions of the Series B Note Agreement or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Series B Note Agreement, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Series B Note Agreement and except that any registered owner may institute action to enforce the payment of the principal of or interest on his Series B Note. 8. MISCELLANEOUS. Modifications or alterations of the Series B Note Agreement may be made only to the extent and in the circumstances permitted by Article IX of the Series B Note Agreement. Executed counterparts of the Series B Note Agreement are on file at the principal corporate trust office of the Trustee. The holder of this Series B Note, by acceptance hereof, consents to all of the terms and provisions of the Series B Note Agreement. It is hereby certified that all acts, conditions and things required to happen, exist and be performed under the laws of the State of New York, and under the Series B Note Agreement precedent to and in connection with the issuance of this Series B Note have happened, exist and have been performed as so required, and that the issuance, authentication and delivery of this Series B Note have been duly authorized by the Borrower. Unless the Certificate of Authentication hereto has been executed by the Paying Agent by manual signature of one of its Responsible Officers, this Series B Note shall not be entitled to any benefit under the Series B Note Agreement, or be valid or obligatory for any purpose. 13 14 IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this Series B Note to be executed in its name and on its behalf by the manual or facsimile signature of the President and Treasurer and attested by manual or facsimile signature of the Secretary or Assistant Secretary and sealed with the corporate seal of Hanover Direct, Inc., all as of the Date of Issuance set forth above. HANOVER DIRECT, INC. By:_____________________________ Name: Jack Rosenfeld Title: President and CEO ATTEST: By: __________________________ Name: ________________________ Title: _______________________ [CORPORATE SEAL] By: ____________________________ Name: Edward J. O'Brien Title: Senior Vice President and Treasurer 14 15 CERTIFICATE OF AUTHENTICATION This Series B Note is one of the Series B Notes issued under the provisions of the within-mentioned Series B Note Agreement. NORWEST BANK MINNESOTA, N.A., as Paying Agent By: ______________________________ Responsible Officer Dated: _________________ 15 16 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________________________________________________________ (PLEASE PRINT OR TYPE THE NAME AND ADDRESS, INCLUDING THE ZIP CODE OF THE TRANSFEREE, AND THE FEDERAL TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) the within Series B Note and all rights thereunder, and hereby irrevocably constitutes and appoints ___________________ Attorney to transfer the within Series B Note on the books kept for registration and transfer thereof, with full power of substitution in the premises. Dated: _____________________ By: _____________________________________ NOTICE The signature of the Registered Owner above must correspond with the name of the Registered Owner as it appears on the registration books maintained by the Paying Agent. Signature Guaranteed By: ______________________________ NOTICE: Signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. 16 EX-10.64 27 FIRST SUPPLEMENTAL SERIES B NOTE AGREEMENT 1 Exhibit 10.64 FIRST SUPPLEMENTAL SERIES B NOTE AGREEMENT This FIRST SUPPLEMENTAL SERIES B NOTE AGREEMENT dated as of December 29, 1995, between HANOVER DIRECT, INC., a Delaware corporation (the "Borrower"), and NORWEST BANK MINNESOTA, N.A., a national banking association organized under the laws of the United States of America and having its principal office in Minneapolis, Minnesota, as trustee and paying agent (the "Trustee" or the "Paying Agent", as applicable); W I T N E S S E T H: WHEREAS, the Borrower and the Trustee entered into the Series B Note Agreement dated as of April 27, 1995 (the "Series B Note Agreement") pursuant to which the Borrower issued and sold its interest bearing Flexible Term Notes, Series B (the "Series B Notes") in the aggregate principal amount of $10,000,000; and WHEREAS, the Borrower has this day delivered to the Trustee a Substitute Series B Letter of Credit in substitution for the Series B Letter of Credit (each as defined in the Series B Note Agreement); and WHEREAS, in order to more fully evidence the delivery of the Substitute Series B of Letter of Credit referenced above, the Borrower and the Trustee desire to amend the Series B Note Agreement, subject to the terms and conditions set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms used in this First Supplemental Series B Note Agreement and not otherwise herein defined shall have the meaning ascribed to them in the Series B Note Agreement. SECTION 2. AMENDMENT TO SECOND RECITAL OF THE SERIES B NOTE AGREEMENT. The second recital of the Series B Note Agreement on page 1 thereof is hereby amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "L/C Issuer". SECTION 3. AMENDMENTS TO SECTION 1.01 OF THE SERIES B NOTE AGREEMENT. (a) The definition of "BANK" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (b) The definition of "BANK NOTES" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: 2 "BANK NOTES" means any Series B Notes purchased from proceeds from a draw under the Series B Letter of Credit and pledged to the Lender under the Reimbursement Agreement, to the extent provided therein, including, in the event a book-entry system with respect to the Series B Notes is in effect, any beneficial ownership interest therein; provided that in the event that the L/C Issuer fails to honor a drawing under the Series B Letter of Credit to fund such a purchase and the Borrower purchases such Series B Notes with its own funds, "Bank Notes" shall include such Series B Notes, except that such Series B Notes shall not be pledged to the Lender under the Reimbursement Agreement. (c) The definition of "BUSINESS DAY" set forth in Section 1.01 of the Series B Note Agreement is amended by deleting the last sentence thereof in its entirety and replacing it with the following: For purposes of this definition, "paying office of the Bank" means the office of the L/C Issuer responsible for making payments under any Series B Letter of Credit. (d) The definition of "OPINION OF COUNSEL" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "OPINION OF COUNSEL" means a written opinion of counsel who is reasonably acceptable to the Trustee, the Placement Agent and Remarketing Agent. The counsel may be an employee of or counsel to the Borrower, the Placement Agent, the Remarketing Agent, the L/C Issuer or the Trustee. (e) The definition of "REIMBURSEMENT AGREEMENT" set forth in Section 1.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: "REIMBURSEMENT AGREEMENT" means, individually and collectively, (a) the Application for Irrevocable Standby Letter of Credit dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties and the Lender requesting the issuance by the L/C Issuer of the Series B Letter of Credit (the "Application"), (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender, acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the Application pursuant to which the Series B Letter of Credit is issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series B Letter of Credit or lender providing credit support to such issuer. (f) The definition of "SERIES B LETTER OF CREDIT" set forth in Section 1.01 of the Series B Note Agreement is amended by (a) deleting the words "State of North Carolina" in the 2 3 third line thereof and replacing them with "Commonwealth of Pennsylvania" and (b) by deleting the word "Bank" in the fourteenth line thereof and replacing it with "L/C Issuer". (g) Section 1.01 of the Series B Note Agreement is hereby amended by adding the following new definitions thereto: "ACCOUNT PARTIES" means Hanover Direct Pennsylvania, Inc., Hanover Direct Virginia Inc. and Gump's Corp., and their successors and assigns. "L/C ISSUER" means the issuer of the Series B Letter of Credit, initially CoreStates Bank, N.A., and upon the issuance and delivery of a Substitute Series B Letter of Credit, shall mean the issuer of such Substitute Series B Letter of Credit. "LENDER" means Congress Financial Corporation, its successors and assigns, or other lender that refinances the obligations to Lender under the Reimbursement Agreement and replaces all credit support given by Lender to the L/C Issuer in respect of the Series B Letter of Credit or any Substitute Series B Letter of Credit. SECTION 4. AMENDMENT TO SECTION 1.02 OF THE SERIES B NOTE AGREEMENT. Subsection (g) of Section 1.02 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (g) All references herein to time shall be Eastern Time unless otherwise expressly stated. SECTION 5. AMENDMENT TO SECTION 2.07 OF THE SERIES B NOTE AGREEMENT. Subsection (b) of Section 2.07 of the Series B Note Agreement is amended by deleting the third sentence thereof in its entirety and replacing it with the following: The Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting. SECTION 6. AMENDMENT TO SECTION 2.08 OF THE SERIES B NOTE AGREEMENT. Subsection (a) of Section 2.08 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the sixth line thereof and replacing it with a reference to the "Lender". 3 4 SECTION 7. AMENDMENTS TO SECTION 3.01 OF THE SERIES B NOTE AGREEMENT. (a) Subsection (a)(ii) of Section 3.01 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the second line thereof and replacing it with a reference to the "Lender". (b) Subsection (c) of Section 3.01 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the eighth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 8. AMENDMENT TO SECTION 3.04 OF THE SERIES B NOTE AGREEMENT. Section 3.04 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender". SECTION 9. AMENDMENT TO SECTION 3.08 OF THE SERIES B NOTE AGREEMENT. Subsection (d)(ii) of Section 3.08 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (ii) All Bank Notes (other than Bank Notes purchased with the Borrower's own funds and not with the proceeds of a draw on the Series B Letter of Credit) will be registered in the name of the Trustee, and, to the extent so provided under the Reimbursement Agreement, held by the Trustee as agent and bailee of the Lender and subject to the pledge by the Borrower to the Lender and shall be held by the Trustee pursuant to this Agreement and the Reimbursement Agreement. Upon receipt of Remarketing Proceeds in respect of Bank Notes, the Remarketing Agent shall notify the Lender, the Trustee and the Borrower of such receipt, and the Remarketing Agent shall execute and deliver to the L/C Issuer, a certificate in the form of Exhibit C attached hereto requesting reinstatement of the Series B Letter of Credit as provided therein. Thereafter, upon the Trustee's receipt of notice from the L/C Issuer, as provided in the Series B Letter of Credit, that the Available Amount of the Series B Letter of Credit has been automatically reinstated as provided therein, the Trustee shall so notify the Remarketing Agent and the Lender, whereupon the Remarketing Agent will remit such Remarketing Proceeds as directed by the Lender. The Trustee shall not release the Bank Notes until it receives from the L/C Issuer the notice referred to in the preceding sentence. The Remarketing Agent shall hold such Remarketing Proceeds in a segregated account of the Remarketing Agent for the benefit of the Borrower, subject to the security interest of the Lender therein pursuant to the Reimbursement Agreement, except that if the Series B Letter of Credit is not reinstated by an amount equal to the Remarketing Proceeds, then the Remarketing Agent shall hold such funds for the benefit of the purchasers which provided such Remarketing Proceeds. 4 5 SECTION 10. AMENDMENTS TO SECTION 4.03 OF THE SERIES B NOTE AGREEMENT. (a) Subsection (c) of Section 4.03 of the Series B Note Agreement is amended by deleting all references to the "Bank" therein and replacing them with references to the "Lender". (b) Subsection (e) of Section 4.03 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the last line thereof and replacing it with a reference to the "L/C Issuer". SECTION 11. AMENDMENT TO SECTION 5.02 OF THE SERIES B NOTE AGREEMENT. Subsection (c) of Section 5.02 of the Series B Note Agreement is amended by deleting all references therein to the "Bank" and replacing them with references to the "L/C Issuer". SECTION 12. AMENDMENT TO SECTION 5.03 OF THE SERIES B NOTE AGREEMENT. Subsection (b) of Section 5.03 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the last line thereof and replacing it with a reference to the "L/C Issuer". SECTION 13. AMENDMENT TO SECTION 5.04 OF THE SERIES B NOTE AGREEMENT. Section 5.04 of the Series B Note Agreement is amended by deleting the second and third paragraphs thereof in their entirety and replacing them with the following: When the Series B Letter of Credit terminates or expires in accordance with its terms or a Substitute Series B Letter of Credit therefor is accepted hereunder, the Trustee shall immediately surrender the Series B Letter of Credit to the L/C Issuer. The Trustee hereby agrees that, except in the case of a redemption in part pursuant to Article III hereof or any other reduction in the principal amount of Series B Notes Outstanding, it will not under any circumstances request that the L/C Issuer reduce the amount of the Series B Letter of Credit. If at any time, all Series B Notes shall cease to be Outstanding, the Trustee shall execute and deliver to the L/C Issuer the certificate in the form of Annex E to the Series B Letter of Credit and shall surrender the Series B Letter of Credit to the L/C Issuer for cancellation. If at any time, the L/C Issuer shall fail to honor a draft presented under the Series B Letter of Credit, in conformity with the terms thereof, the Trustee shall give immediate telephonic notice thereof to the Remarketing Agent, the Lender and the Borrower. SECTION 14. AMENDMENT TO SECTION 7.01 OF THE SERIES B NOTE AGREEMENT. Subsection (d) of Section 7.01 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (d) Receipt by the Trustee of written notice from the Lender that an Event of Default has occurred under the Reimbursement Agreement. SECTION 15. AMENDMENTS TO SECTION 7.02 OF THE SERIES B NOTE AGREEMENT. 5 6 (a) Subsection (a) of Section 7.02 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the second line thereof and replacing it with a reference to the "Lender". (b) Subsection (b) of Section 7.02 of the Series B Note Agreement is hereby deleted in its entirety and replaced with the following: (b) Upon the occurrence of any Event of Default specified in Section 7.01(c), the Trustee shall notify the Lender of such Event of Default and shall, by notice to the Borrower, the Paying Agent (who shall promptly give such notice to the holders) and the Remarketing Agent declare the entire unpaid principal of and interest on the Series B Notes immediately due and payable, and, thereupon, the entire unpaid principal of and interest on the Series B Notes shall forthwith become due and payable. SECTION 16. AMENDMENT TO SECTION 7.03 OF THE SERIES B NOTE AGREEMENT. Section 7.03 of the Series B Note Agreement is amended (a) by deleting the reference to the "Bank" in the first sentence thereof and replacing it with a reference to the "Lender" and (b) by deleting the second sentence thereof in its entirety and replacing it with the following: If such instructions are received by the Trustee, such draw proceeds and, if necessary, the moneys on deposit in the Interest Reserve Account, shall be immediately applied to the purchase of the Series B Notes, the acceleration of the Series B Notes shall be cancelled, the Series B Notes shall become Bank Notes and the Series B Notes shall be registered in the name of the Trustee, and, to the extent so provided under the Reimbursement Agreement, held by the Trustee as agent and bailee of the Lender, and pledged under the Reimbursement Agreement as additional security for repayment of the Borrower's obligations under the Reimbursement Agreement. SECTION 17. AMENDMENT TO SECTION 7.05 OF THE SERIES B NOTE AGREEMENT. Section 7.05 of the Series B Note Agreement is amended by adding the phrase "and the Account Parties" between the words "Borrower" and "to" in the seventh line thereof. SECTION 18. AMENDMENT TO SECTION 7.06 OF THE SERIES B NOTE AGREEMENT. Section 7.06 of the Series B Note Agreement is amended (a) by deleting the references to the "Bank" in the second and fourth lines thereof and replacing them with references to the "Lender" and (b) by deleting the reference to the "Bank" in the second line of subsection (b) thereof and replacing it with a reference to the "L/C Issuer". 6 7 SECTION 19. AMENDMENT TO SECTION 7.09 OF THE SERIES B NOTE AGREEMENT. Section 7.03 of the Series B Note Agreement is deleted in its entirety and replaced with the following: SECTION 7.09 [RESERVED]. SECTION 20. AMENDMENT TO SECTION 8.05 OF THE SERIES B NOTE AGREEMENT. Section 8.05 of the Series B Notes Agreement is amended by deleting the references to the "Bank" in the sixth and tenth lines thereof and replacing them with references to the "Lender". SECTION 21. AMENDMENT TO SECTION 8.08 OF THE SERIES B NOTE AGREEMENT. Section 8.08 of the Series B Note Agreement is amended (a) by deleting all references therein to the "Bank" or "Banks" and replacing them with references to the "Lender" or "Lender's", as applicable, and (b) by adding the following sentence after the last paragraph thereof: No resignation or removal of the Trustee shall be binding upon the L/C Issuer for purposes of the Series B Letter of Credit, and no successor Trustee shall have any rights to draw, except upon compliance with the transfer provisions therein set forth. SECTION 22. AMENDMENT TO SECTION 8.10 OF THE SERIES B NOTE AGREEMENT. Section 8.10 of the Series B Note Agreement is amended (a) by deleting all references therein to the "Bank" and replacing them with references to the "Lender" and (b) by adding the following sentence after the last paragraph thereof: No such resignation or removal of the Remarketing Agent or appointment of or assignment to a successor Remarketing Agent shall be binding upon the L/C Issuer for purposes of the Series B Letter of Credit, unless set forth in an amendment to the Series B Letter of Credit issued by the L/C Issuer. SECTION 23. AMENDMENT TO SECTION 8.11 OF THE SERIES B NOTE AGREEMENT. Subsection (c) of Section 8.11 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the fourth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 24. AMENDMENT TO SECTION 8.12 OF THE SERIES B NOTE AGREEMENT. Section 8.12 of the Series B Note Agreement is amended by deleting all references to the "Bank" therein and replacing them with references to the "Lender". SECTION 25. AMENDMENT TO SECTION 8.13 OF THE SERIES B NOTE AGREEMENT. Section 8.13 of the Series B Note Agreement is amended by deleting all references to the "Bank" therein and replacing them with references to the "Lender". SECTION 26. AMENDMENT TO SECTION 8.14 OF THE SERIES B NOTE AGREEMENT. Section 8.14 of the Series B Note Agreement is amended by deleting all references to the "Bank" or "Bank's" therein and replacing them with references to the "Lender" or "Lender's", as applicable. 7 8 SECTION 27. AMENDMENT TO SECTION 8.16 OF THE SERIES B NOTE AGREEMENT. Section 8.16 of the Series B Note Agreement is amended (a) by adding the phrase ", to the extent provided in the Reimbursement Agreement," after the word "shall" at the end of the fourth line thereof and (b) by deleting the reference to the "Bank" in the fifth line thereof and replacing it with a reference to the "Lender". SECTION 28. AMENDMENT TO SECTION 9.01 OF THE SERIES B NOTE AGREEMENT. Subsection (f) of Section 9.01 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the fifth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 29. AMENDMENT TO SECTION 9.02 OF THE SERIES B NOTE AGREEMENT. Section 9.02 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the fourteenth line thereof and replacing it with a reference to the "L/C Issuer". SECTION 30. AMENDMENT TO SECTION 9.06 OF THE SERIES B NOTE AGREEMENT. The heading and the first sentence of Section 9.06 of the Series B Note Agreement are hereby deleted in their entirety and replaced with the following: Section 9.06. LENDER AND REMARKETING AGENT CONSENT REQUIRED. Except to the extent that the consent of the Remarketing Agent or the Lender is not required for the action that is the subject of the amendment (e.g., removal of the Remarketing Agent, the Trustee or the Paying Agent by the Borrower upon the terms specified herein), an amendment to this Agreement or the Series B Notes shall not become effective unless the Remarketing Agent (but only to the extent that such amendment affects the rights, duties or obligations of the Remarketing Agent hereunder) and the Lender deliver to the Trustee their written consents to the amendment. SECTION 31. AMENDMENT TO SECTION 10.01 OF THE SERIES B NOTE AGREEMENT. Subsection (b) of Section 10.01 of the Series B Note Agreement is amended by deleting the reference to, and the address of, the "Bank" therein and replacing them with the following: If to the L/C Issuer: CoreStates Bank, N.A. 530 Walnut Street Philadelphia, Pennsylvania 19106 Attention: Ms. Cheryl Morton, Letter of Credit Department, 7th Floor Telephone No.: (215) 973-8157 Fax No.: (215) 973-6352 If to the Lender: Congress Financial Corporation 1133 Avenue of the Americas New York, New York 10036 Attention: Mr. Mark Fagnani Telephone No.: (212) 840-2000 Fax No.: (212) 545-4283 8 9 SECTION 32. AMENDMENT TO SECTION 10.09 OF THE SERIES B NOTE AGREEMENT. Section 10.09 of the Series B Note Agreement is amended by deleting the reference to the "Bank" in the fourth line thereof and replacing it with a reference to the "Lender". SECTION 33. AMENDMENTS TO EXHIBIT A TO THE SERIES B NOTE AGREEMENT - FORM OF SERIES B NOTE. Exhibit A to the Series B Note Agreement (the "Form of Series B Note") is hereby amended as follows: (a) The second boldface paragraph on the first page of the Form of Series B Note (prior to the text thereof) is hereby deleted in its entirety and replaced with the following: PAYMENTS OF PRINCIPAL AND PURCHASE PRICE OF AND INTEREST ON THIS SERIES B NOTE WILL BE MADE FROM DRAWINGS UNDER THE SERIES B LETTER OF CREDIT (HEREINAFTER DEFINED) IF REMARKETING PROCEEDS ARE NOT AVAILABLE OR IF AN EVENT OF DEFAULT HAS OCCURRED. ALTHOUGH THE SERIES B LETTER OF CREDIT IS A BINDING OBLIGATION OF CORESTATES BANK, N.A. (THE "L/C ISSUER"), THIS SERIES B NOTE IS NOT A DEPOSIT OR OBLIGATION OF CORESTATES FINANCIAL CORP OR ANY OF ITS AFFILIATES, INCLUDING THE L/C ISSUER AND CONGRESS FINANCIAL CORPORATION, NOR IS THIS SERIES B NOTE A DEPOSIT OR OBLIGATION OF NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS, INCLUDING NATIONSBANK, N.A., AND THIS SERIES B NOTE IS NOT GUARANTEED BY ANY OF THESE ENTITIES. THIS SERIES B NOTE IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION AND IS SUBJECT TO CERTAIN INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. (b) The second paragraph of the text of the Form of Series B Note, beginning on page A-2 thereof, is amended by deleting the first two sentences thereof and replacing them with the following: This Series B Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series B (the "Series B Notes"), issued pursuant to a Series B Note Agreement dated as of April 27, 1995, between the Borrower, and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, as amended by that certain First Supplemental Series B Note Agreement dated as of December 29, 1995 between the Borrower and the Trustee (as further amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the "Series B Note Agreement"), for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility owned and used 9 10 by certain subsidiaries of the Borrower located in Roanoke, Virginia and a new retail store of Gump's Corp., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series B Note Agreement, the Borrower has arranged, through a credit facility established with Lender for certain of Borrower's subsidiaries, and as guarantor of such financing arrangements with Lender, for L/C Issuer to issue for the account of such subsidiaries its irrevocable Series B Letter of Credit dated December 29, 1995 (the "Series B Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series B Facility Amount and unpaid interest on or Purchase Price of the Series B Notes, but not to exceed $10,145,833, pursuant to (a) the Application for Irrevocable Standby Letter of Credit dated as of December 22, 1995 executed and delivered to the L/C Issuer by the Account Parties (as defined in the Series B Note Agreement) and the Lender requesting the issuance by the L/C Issuer of the Series B Letter of Credit (the "Application"), (b) the Loan and Security Agreement dated as of November 14, 1995 (the "Loan Agreement"), by and among the Account Parties and certain other subsidiaries of the Borrower, and the Lender, acknowledged and agreed to by the Borrower and certain other subsidiaries of the Borrower, pursuant to which, among other things, the Lender has executed the Application pursuant to which the Series B Letter of Credit is issued by the L/C Issuer and delivered to the Trustee, and any and all modifications, alterations, amendments and supplements thereto, (c) the other "Financing Agreements" as defined in the Loan Agreement and (d) any similar agreements between or among the Account Parties, the Borrower and the issuer of a Substitute Series B Letter of Credit or lender providing credit support to such issuer (individually and collectively, the "Reimbursement Agreement"). (c) The seventh paragraph of the text of the Form of Series B Note, beginning on page A-4 thereof, is amended by deleting the third sentence thereof in its entirety and replacing it with the following: The Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series B Notes so held, as the owner of the Series B Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series B Notes, (ii) notices and (iii) voting. 10 11 (d) Section 1 of the Form of Series B Note, beginning on page A-5 thereof, is amended by adding the following definition: "BANK" means, individually and collectively, the Lender and the L/C Issuer. (e) Subsection (f) of Section 3 of the Form of Series B Note, beginning on page A-9 thereof, is amended by deleting the reference to the "Bank" in the third line thereof and replacing it with a reference to the "Lender." (f) Subsection (a) of Section 4 of the Form of Series B Note, beginning on page A-10 thereof, is amended by deleting the reference to the "Bank" in the fourth line of the last paragraph thereof and replacing it with a reference to the "Lender." (g) Section 7 of the Form of Series B Note, beginning on page A-13 thereof, is amended by deleting the second and third sentences of the first paragraph thereof in their entirety and replacing them with the following: The Series B Note Agreement directs the Trustee to declare an acceleration upon written notice by the Lender of the occurrence and continuance of an event of default under the Reimbursement Agreement and upon the occurrence of certain other Events of Default under the Series B Note Agreement. SECTION 34. ADDITION OF EXHIBIT C TO SERIES B NOTE AGREEMENT. The Series B Note Agreement is amended by adding Exhibit C thereto, a copy of which is attached hereto and incorporated herein and in the Series B Note Agreement by this reference. SECTION 35. EFFECT OF FIRST SUPPLEMENTAL SERIES B NOTE AGREEMENT. Except as modified hereby, all of the terms and provisions of the Series B Note Agreement shall remain in full force and effect. SECTION 36. GOVERNING LAW. This First Supplemental Series B Note Agreement and the Series B Note Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of New York. 11 12 SECTION 37. SEVERABILITY. If any provision of this First Supplemental Series B Note Agreement shall be determined to be unenforceable by a court of law, that shall not affect any other provision of this First Supplemental Series B Note Agreement. SECTION 38. COUNTERPARTS. This Agreement may be signed in several counterparts, each of which will be an original and all of which together will constitute the same instrument. [Signatures on following page.] 12 13 IN WITNESS WHEREOF, the parties hereto have cause this First Supplemental Series B Note Agreement to be duly executed as of the day and year first above written. HANOVER DIRECT, INC. By: /s/ Edward J. O'Brien ______________________________________ Name: Edward J. O'Brien ____________________________________ Title: Executive Vice President & Treasurer ___________________________________ [CORPORATE SEAL] NORWEST BANK MINNESOTA, N.A. as Trustee and Paying Agent By: /s/ Polly B. Berquist ______________________________________ Name: Polly B. Berquist ____________________________________ Title: Assistant Vice President ___________________________________ 13 14 EXHIBIT C CERTIFICATE OF REMARKETING OF NOTES TO EFFECT REINSTATEMENT OF PURCHASE DRAWING [DATE] CoreStates Bank, N.A. 530 Walnut Street Philadelphia, Pennsylvania 19106 Attention: Ms. Cheryl Morton Letter of Credit Department, 7th Floor RE: IRREVOCABLE LETTER OF CREDIT REF. NO. ___________ FOR THE ACCOUNT OF HANOVER DIRECT PENNSYLVANIA, INC., HANOVER DIRECT VIRGINIA INC. AND GUMP'S CORP. (THE LETTER OF CREDIT") Ladies and Gentlemen: The undersigned, being the Remarketing Agent, as defined in the above-referenced Letter of Credit, hereby certifies that Bank Notes in the principal amount of $_______ (the "Remarketed Notes") for which a Purchase Drawing was made by the Trustee and previously paid by you, have been remarketed by us and we are holding the remarketing proceeds pursuant to Section 3.08(d)(ii) of the Note Agreement. Please confirm to the Trustee that the Principal Component has been reinstated automatically by an amount equal to the said principal amount of the Remarketed Notes and that the Interest Component has been reinstated automatically by an amount equal to thirty-five (35) days' interest on the Principal Component so reinstated computed at the Maximum Rate. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the above-referenced Letter of Credit. IN WITNESS WHEREOF, the Remarketing Agent has executed and delivered this Certificate as of ___ of ____, ___. NATIONSBANK, NATIONAL ASSOCIATION, as Remarketing Agent By:_____________________________________ [Name and Title] EX-10.65 28 $10,000,000 SERIES A NOTE DATED NOVEMBER 9, 1994 1 EXHIBIT 10.65 THIS SERIES A NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE REGULATORY AUTHORITY UNDER ANY STATE SECURITIES LAWS AND THEREFORE CANNOT BE RESOLD UNLESS IT IS REGISTERED UNDER SUCH ACT OR APPLICABLE LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS SERIES A NOTE IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED BY, NATIONSBANK CORPORATION OR ANY OF ITS AFFILIATED BANKS, INCLUDING NATIONSBANK OF NORTH CAROLINA, N.A. (THE "BANK'), IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. ALTHOUGH NOT GUARANTEED BY THE BANK, PAYMENTS OF PRINCIPAL AND INTEREST ON THIS SERIES A NOTE AND, IF REMARKETING PROCEEDS ARE NOT AVAILABLE, THE PURCHASE PRICE OF THIS SERIES A NOTE, WILL BE MADE FROM DRAWINGS UNDER THE SERIES A LETTER OF CREDIT ISSUED BY THE BANK. THE FAILURE OF THE BANK TO HONOR ANY DRAWING UNDER THE SERIES A LETTER OF CREDIT WILL NOT GIVE RISE TO ANY CLAIM OTHER THAN AGAINST THE BANK. SERIES A NOTE REGISTERED REGISTERED No. R-1 $10,000,000.00 HANOVER DIRECT, INC. FLEXIBLE TERM SERIES A NOTES, SERIES A INTEREST RATE MATURITY DATE DATE OF ISSUANCE As Described October 1, 2009 November 9, 1994 REGISTERED OWNER: CEDE AND CO. PRINCIPAL AMOUNT: TEN MILLION DOLLARS ($10,000,000.00) Hanover Direct, Inc., a Delaware corporation (the "Borrower"), for value received, hereby promises to pay, solely from the sources and in the manner hereinafter provided, to the registered owner, or registered assigns or legal representative, upon presentation and surrender hereof at the principal corporate trust office of Norwest Bank Minnesota, N.A., or its successor (in such capacity, the "Paying Agent"), or by wire transfer, as 2 provided in the Series A Note Agreement, as hereinafter defined, the principal sum set forth above on the Maturity Date set forth above, subject to the prior mandatory or optional redemption of this Series A Note as hereinafter provided, and to pay solely from such source interest hereon at the Interest Rate, as hereinafter defined, payable in arrears on the Interest Payment Date, as hereinafter defined, until payment in full and, to the extent permitted by law, interest on overdue installments of such interest, from the Interest Payment Date applicable to this Series A Note next preceding the date on which this Series A Note is authenticated, unless this Series A Note is (a) authenticated before the first Interest Payment Date following the initial delivery of the Series A Notes issued herein, in which case it shall bear interest from the date of such initial delivery or (b) authenticated upon an Interest Payment Date, in which case it shall bear interest from such Interest Payment Date (unless interest on this Series A Note is in default at the time of authentication, in which case this Series A Note shall bear interest from the last date to which interest has been paid). Except as otherwise provided in the Series A Note Agreement, interest hereon shall be paid to the person in whose name this Series A Note is registered on the register of the Paying Agent at the close of business on the Record Date next preceding each Interest Payment Date, by check or draft mailed to such person at his address as it appears on the register maintained by the Paying Agent, or by wire transfer for holders of an aggregate principal amount of at least $500,000, at the request of such holders, as provided in the Series A Note Agreement. Principal and Purchase Price, as hereinafter defined, of and interest on this Series A Note are payable in lawful currency of the United States of America. If any payment hereon is due on a day which is not a Business Day, as hereinafter defined, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the day such payment was due and, in the case of such payment, no interest shall accrue for the intervening period. This Series A Note is one of an issue not to exceed $10,000,000 Hanover Direct, Inc. Flexible Term Notes, Series A (the "Series A Notes"), issued pursuant to a Series A Note Agreement dated as of November 9, 1994 (the "Series A Note Agreement"), between the Borrower and Norwest Bank Minnesota, N.A., as trustee (in such capacity, the "Trustee") and Paying Agent, for the purpose of refinancing and/or financing certain construction, refurbishment and related costs of an approximately 530,000 square foot distribution facility of the Borrower located in Roanoke, Virginia and a new retail store of Gump's, Inc., a subsidiary of the Borrower located in San Francisco, California. Pursuant to the Series A Note Agreement, the Borrower has caused NationsBank of North Carolina, N.A. (the "Bank") to issue its irrevocable Series A Letter of Credit dated the Date of Issuance (as hereinafter defined and as set forth above) of the Series A 2 3 Notes (the "Series A Letter of Credit") in favor of the Trustee, in an amount sufficient to pay the Series A Facility Amount and unpaid interest on or Purchase Price of the Series A Notes, but not to exceed $10,145,833, pursuant to a Credit Facilities and Reimbursement Agreement dated as of October 12, 1994 (the "Reimbursement Agreement") by and among the Borrower, the financial lenders listed on the signature pages of the Reimbursement Agreement including the Bank, and the Bank, as agent, which Series A Letter of Credit initially expires (subject to extension or earlier termination as provided in the Reimbursement Agreement and the Series A Note Agreement) on November 9, 1997. Substitute letters of credit may be delivered in accordance with the Series A Note Agreement. The Trustee is authorized and directed pursuant to the Series A Note Agreement to make timely draws under the Series A Letter of Credit in accordance with the terms thereof, to the extent necessary to make when due the payments of principal of (whether on the Maturity Date referenced above, by acceleration, or by call for redemption), the Purchase Price of and interest on the Series A Notes, except as otherwise provided in the Series A Note Agreement and the Series A Letter of Credit. Reference is hereby made to the Series A Note Agreement, the Series A Letter of Credit, the Reimbursement Agreement and to all amendments and supplements thereto for a description of the provisions, among others, with respect to the nature and extent of the security, the default provisions, the rights, duties and obligations of the Borrower and the Trustee and the rights of the holders of the Series A Notes and the terms upon which the Series A Notes are issued and secured. The Series A Notes are issuable in registered form without coupons in denominations of $100,000 or any integral multiple of $100,000 in excess thereof (the "Authorized Denominations"). This Series A Note, upon surrender hereof at the principal corporate trust office of the Paying Agent with a written instrument of transfer satisfactory to the Paying Agent duly endorsed for transfer or accompanied by an assignment duly executed by the holder hereof or his attorney duly authorized in writing and, in either case, with an appropriate guarantee of signature conforming to the requirements of the assignment attached hereto, may, at the option of the holder hereof, be exchanged for Series A Notes of the same aggregate principal amount and tenor as the Series A Notes being exchanged and of any Authorized Denomination. This Series A Note is transferable as provided in the Series A Note Agreement, subject to certain limitations therein contained, only upon the register of the Paying Agent, and only upon surrender of this Series A Note for transfer to the Paying Agent duly endorsed for transfer or accompanied by a written instrument of transfer (in substantially the form of the assignment attached hereto) duly executed by the holder hereof or his duly authorized attorney. Thereupon, one or more new Series A Notes of any Authorized Denomination or 3 4 Authorized Denominations and in the same aggregate principal amount and tenor as the Series A Note surrendered will be issued to the designated transferee or transferees. The person in whose name this Series A Note is registered shall be deemed and regarded as the absolute owner hereof for any purpose, as provided in and as qualified by the Series A Note Agreement. The Paying Agent or NationsBank of North Carolina, N.A. as Remarketing Agent (the "Remarketing Agent"), may make appropriate arrangements for some or all of the Series A Notes to be issued or held by means of a book-entry system administered by a Securities Depository, as hereinafter defined, with no physical distribution of Series A Notes made to the public (other than those Series A Notes, if any, not held under such book-entry system). Initially, all of the Series A Notes will be held by means of a book-entry system administered by the Securities Depository. One Series A Note certificate in registered form will be issued for the Series A Notes in the aggregate principal amount of $10,000,000, and will be registered in the name of the Securities Depository Nominee and will be deposited with the Paying Agent. Thereafter, in the event that Series A Notes are issued to the Beneficial Owners thereof in certificated (physical) form (and in each and every case thereafter in which a change in the principal amount of Series A Notes held pursuant to a book-entry system is made), the Paying Agent will take all actions necessary to comply with the Balance Certificate Agreement dated as of the date hereof between Norwest Bank Minnesota, N.A., as transfer agent, and the Securities Depository, which agreement governs the mechanisms for the registration of transfer of Series A Note certificates registered in the name of the Securities Depository Nominee. With respect to any Series A Notes that are held by means of a book-entry system, such book-entry system will evidence beneficial ownership of the Series A Notes so held in Authorized Denominations (or, as applicable, positions held by the Participants, beneficial ownership being evidenced in the records of such Participants). Registration and transfers of ownership shall be effected on the records of the Securities Depository and the Participants, as applicable, pursuant to rules and procedures established by the Securities Depository and the Participants. Subject to the provisions of Section 7.09 of the Series A Note Agreement relating to the Bank as holder of the Series A Notes, the Borrower, the Trustee and the Paying Agent will recognize the Securities Depository Nominee, as hereinafter defined, while the registered owner of the Series A Notes so held, as the owner of the Series A Notes for all purposes, including (i) payments of principal and Purchase Price of, and interest on, the Series A 4 5 Notes, (ii) notices and (iii) voting, subject to certain qualifications as stated in the Series A Note Agreement. Transfer of principal, interest and Purchase Price payments to beneficial owners of the Series A Notes so held will be the responsibility of the Securities Depository and the Participants. The Borrower, the Trustee, the Bank and the Paying Agent will not be responsible or liable for such transfers of payments or for maintaining, supervising or reviewing the records maintained by the Securities Depository, the Securities Depository Nominee or the Participants. While the Securities Depository Nominee is the owner of the Series A Notes so held, notwithstanding the provision hereinabove contained, payments of principal and Purchase Price of and interest on such Series A Notes shall be made in accordance with the Letter of Representations dated as of November 9, 1994 among the Borrower, the Trustee, the Remarketing Agent and Paying Agent and received and accepted by the Securities Depository. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE AND TRANSFER OF OWNERSHIP IS MAINTAINED WITH RESPECT TO THIS SERIES A NOTE IN ACCORDANCE WITH THE TERMS OF THE SERIES A NOTE AGREEMENT, (1) THE PROVISIONS OF THIS SERIES A NOTE RELATING TO THE DELIVERY OF PHYSICAL SERIES A NOTES SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED WITH REGARD TO THIS SERIES A NOTE AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM AND (2) THE PROVISIONS OF THIS SERIES A NOTE RELATING TO ISSUANCE, PAYMENTS OF PRINCIPAL, PURCHASE PRICE AND INTEREST, AND ESTABLISHMENT OF REST RATES AND INTEREST PERIODS WITH RESPECT TO THE SERIES A NOTES SHALL BE APPLICABLE TO BENEFICIAL OWNERSHIP INTERESTS IN THE SERIES A NOTES IN AUTHORIZED DENOMINATIONS TO THE SAME EXTENT AS SUCH PROVISIONS ARE APPLICABLE TO REGISTERED OWNERSHIP INTERESTS IN THE SERIES A NOTES. In the event that a book-entry system of evidence and transfer of ownership of the Series A Notes is discontinued pursuant to the provisions of the Series A Note Agreement, the Series A Notes shall be delivered solely in registered form without coupons in the Authorized Denominations, shall be lettered "R" and numbered separately from 1 upward, and shall be payable, executed, authenticated, registered, exchanged and cancelled pursuant to the provisions hereof and of the Series A Note Agreement. All references herein to time shall be Charlotte, North Carolina time unless otherwise expressly stated herein. Except as otherwise specifically provided herein, all capitalized words and terms shall have the same meaning when used herein as set forth in the Series A Note Agreement. 5 6 1. CERTAIN DEFINITIONS. "BUSINESS DAY" means any day other than (a) Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or in the city or cities in which the corporate trust office of the Trustee or the Paying Agent, the primary office of the Remarketing Agent or the Placement Agent or the paying office of the Bank are authorized by law or executive order to close or (c) a day on which the New York Stock Exchange is closed. For purposes of this definition, "paying office of the Bank" means the Bank office responsible for making payments under any Series A Letter of Credit. "DATE OF ISSUANCE" means the date upon which the Series A Notes are issued, authenticated and delivered in accordance with the terms and conditions of Section 2.06 of the Series A Note Agreement. "INTEREST PAYMENT DATE" means the first day after the last day of each Interest Period. "INTEREST PERIOD" means, with respect to any Series A Note, each period of between one (1) and one hundred eighty (180) days established from time to time by the Remarketing Agent in accordance with the Interest Period determination method described in Section 2.02(a) of the Series A Note Agreement. "INTEREST RATE" means, with respect to any Series A Note, the interest rate on such Series A Note determined from time to time by the Remarketing Agent in accordance with the Interest Rate determination method described in Section 2.02(a) of the Series A Note Agreement. In no event shall the Interest Rate exceed the lesser of fifteen percent (15%) per annum or the highest interest rate which may be borne by the Series A Notes under applicable law. "PARTICIPANTS" means securities brokers and dealers, banks, trust companies and clearing corporations which have access to the Securities Depository's system. "PURCHASE DATE" means, with respect to any Series A Notes, the date on which such Series A Notes are required to be purchased pursuant to the terms and conditions of Section 3.07(a) of the Series A Note Agreement. "PURCHASE PRICE" means an amount equal to 100% of the principal amount of any Series A Note tendered or deemed tendered to the Trustee for purchase pursuant to the terms and conditions of Section 3.07 of the Series A Note Agreement, plus accrued and unpaid interest thereon to, but excluding, the Purchase Date. "RECORD DATE" means, with respect to each Interest 6 7 Payment Date, the Trustee's close of business on the Business Day next preceding such Interest Payment Date. "SECURITIES DEPOSITORY" means, initially, The Depository Trust Company, or any successor or substitute securities depository selected by the Borrower (with the consent of the Trustee and the Remarketing Agent), which shall maintain a book-entry system in respect of the Series A Notes. "SECURITIES DEPOSITORY NOMINEE" means, as to any Securities Depository, such Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the register maintained by the Paying Agent the Series A Note certificate to be delivered to and immobilized with the Paying Agent during continuation with such Securities Depository of participation in its book-entry system, and shall initially be Cede & Co., nominee of The Depository Trust Company. 2. INTEREST ON THE SERIES A NOTES. The Series A Notes will bear interest at the Interest Rate from the Date of Issuance until paid in full. Interest accrued on each Series A Note shall be paid on the applicable Interest Payment Date therefor. The amount of interest payable on any Interest Payment Date shall be computed on the basis of the actual number of days elapsed over a year of 360 days. The initial Interest Period and corresponding Interest Rate for each Series A Note will be determined by the Remarketing Agent on the Date of Issuance. After the initial determination of the Interest Period and corresponding Interest Rate, the applicable Interest Period and corresponding Interest Rate shall be determined by the Remarketing Agent at the time and in the manner specified in Section 2.02 of the Series A Note Agreement. The Remarketing Agent's determination of the Interest Periods and Interest Rates shall be conclusive and binding on the Noteholders, the Paying Agent, the Remarketing Agent, the Borrower, the Bank and the Trustee. The Remarketing Agent will notify the Paying Agent in writing (which may be in telecopy form) or by telephone promptly confirmed in writing by 10:00 a.m. on the first Business Day of each Interest Period with respect to any Series A note, of the identity of such Series A Note, the length of such Interest Period, the Interest Rate therefor and the principal amount of such Series A Note, and, upon the request of the Borrower or the Bank, the Paying Agent shall promptly (but in no event later than the end of such Business Day) after its receipt of such information, forward such information to the Borrower and the Bank. The failure by the Remarketing Agent or the Paying Agent, as applicable, to give any such notice shall not affect the change in the Interest Period and/or Interest Rate. 7 8 The calculation of interest payable on the Series A Notes as provided in this Agreement will be conclusive and binding on the Borrower, the Bank, the Trustee, the Paying Agent, the Remarketing Agent and the Noteholders, absent manifest error. Neither the Remarketing Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Trustee, the Paying Agent, the Bank or any Noteholder for any action taken or not taken by the Remarketing Agent or any of its directors, officers, agents or employees in connection with the determination of the Interest Period and Interest Rate for each Series A Note pursuant to the Series A Note Agreement, in the absence of its own negligence or willful misconduct. 3. REDEMPTION OF SERIES A NOTES. (a) OPTIONAL REDEMPTION. The Series A Notes are subject to redemption at the option of the Borrower, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date; provided that any such redemption in part shall be in a minimum principal amount of $100,000. (b) MANDATORY SINKING FUND REDEMPTION. The Series A Notes are subject to mandatory sinking fund redemption prior to the Maturity Date, in part, with the Series A Notes to be redeemed being selected pursuant to Section 3.03, at a redemption price equal to the principal amount thereof, on October 1, or if any such date is not a Business Day, on the next succeeding Business Day with the same force and effect, in the years and in the principal amounts indicated below:
REDEMPTION DATE PRINCIPAL (OCTOBER 1) AMOUNT ---------------------------------- 1996 $500,000 1997 500,000 1998 500,000 1999 500,000 2000 500,000 2001 800,000 2002 800,000 2003 800,000 2004 800,000 2005 800,000 2006 800,000 2007 800,000 2008 800,000 2009 800,000
8 9 (c) MANDATORY REDEMPTION ON EXPIRATION OR TERMINATION OF SERIES A LETTER OF CREDIT WITHOUT EXTENSION OR PROVIDING A SUBSTITUTE SERIES A LETTER OF CREDIT. The Series A Notes are subject to mandatory redemption in whole on the fifth (5th) Business Day prior to the stated date of expiration or termination of the Series A Letter of Credit, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to, but excluding, the redemption date, unless by the twentieth (20th) day prior to such redemption date the Borrower provides to the Trustee, and the Trustee has accepted, (1) evidence that such Series A Letter of Credit has been extended or (2) a Substitute Series A Letter of Credit to be effective on or prior to such redemption date. (d) REDEMPTION DATE. The redemption date for Series A Notes to be redeemed as described in paragraph 3(a) above must be an Interest Payment Date with respect to the Series A Notes being redeemed. The redemption date for mandatory redemptions will be as specified in paragraph 3(b) or (c) above, as the case may be, or determined by the Trustee or the Remarketing Agent consistently with the provisions thereof and of the Series A Note Agreement. (e) SELECTION OF SERIES A NOTES TO BE REDEEMED. Except as otherwise provided herein or in Section 3.03 of the Series A Note Agreement, if fewer than all the Series A Notes are to be redeemed, the Remarketing Agent will select the Series A Notes to be redeemed by lot or such other method as it deems in its sole discretion to be fair and appropriate and shall notify the Paying Agent (which notice may be provided by telephone, immediately confirmed in writing by legible facsimile transmission, registered or certified mail, overnight express delivery, or other secure means) of the holders and denominations of Series A Notes to be redeemed; provided, however, that in selecting Series A Notes to be redeemed the Remarketing Agent shall (i) select only Series A Notes not previously called for redemption, (ii) select Bank Notes prior to any other Series A Notes, and (iii) with respect to any mandatory sinking fund redemption as described in paragraph 3(b) above, select the Series A Notes to be redeemed on or before the sixtieth (60th) day prior to the redemption date, and in making such selection take into account the duration of the Interest Periods with respect to such Series A Notes. In the event the Remarketing Agent fails to notify the Paying Agent of the Series A Notes to be redeemed on or before the ninth (9th) Business Day prior to the redemption date, the Paying Agent shall proceed to select Series A Notes for redemption from among the Outstanding Series A Notes in the chronological order in which their Purchase Dates occur, beginning with the earliest Purchase Date; provided, however, that in selecting Series A Notes to be redeemed the Paying Agent 9 10 shall (i) select only Series A Notes not previously called for redemption and (ii) select Bank Notes prior to any other Series A Notes. If fewer than all Series A Notes having the same Purchase Date (selected for redemption as provided in the immediately preceding sentence) are to be redeemed, the Paying Agent shall treat each owner of Series A Notes as the owner of one Series A Note for purposes of selection for redemption, and shall select Series A Notes for redemption by lot or such other method as it deems fair and appropriate, (1) from among the holders of less than $1,000,000 in aggregate principal amount, provided that if there are no such holders, or if, after selection from among such holders such selection has not resulted in redemption of a sufficient amount of Series A Notes, then (2) from among the holders of $1,000,000 or more in aggregate principal amount of Series A Notes. No portion of a Series A Note may be redeemed that would result in a Series A Note which is smaller than the then permitted minimum Authorized Denomination. For this purpose, the Remarketing Agent or the Paying Agent will consider each Series A Note in a denomination larger than the minimum denomination permitted by the Series A Notes at the time to be separate Series A Notes each in the minimum denomination. (f) NOTICE OF REDEMPTION. The Trustee will prepare and cause the Paying Agent to send notice of each redemption to each Noteholder whose Series A Notes are being redeemed, the Borrower, the Remarketing Agent and the Bank by first-class mail at least seven (7) Business Days but not more than sixty (60) (or twenty (20), in the case of a mandatory redemption pursuant to paragraph 3(c) above) days before each redemption. The notice shall identify the Series A Notes or portions thereof to be redeemed and will state: (i) the type of redemption and the redemption date, (ii) the redemption price, (iii) that the Series A Notes called for redemption must be surrendered to collect the redemption price, (iv) the address of the Paying Agent at which the Series A Notes must be surrendered, (v) that interest on the Series A Notes called for redemption ceases to accrue on the redemption date, (vi) the CUSIP number of the Series A Notes called for redemption and (vii) any condition to the redemption. Failure by the Trustee or the Paying Agent to give any notice of redemption as to any particular Series A Notes will not affect the validity of the call for redemption of any Series A Notes in respect of which no such failure has occurred. Any notice mailed as provided in the Series A Notes will be conclusively presumed to have been given whether or not actually received by any holder or beneficial owner. (g) EFFECT OF REDEMPTION. On the date fixed for redemption, notice having been given in the manner and under the conditions provided in the Series A Note Agreement, the Series A Notes or portions thereof called for redemption shall be due and 10 11 payable at the redemption price provided therefor, plus accrued interest to such date. On such redemption date, if moneys sufficient to pay the redemption price of the Series A Notes to be redeemed, plus accrued interest thereon to the date fixed for redemption, are held by the Paying Agent, interest on the Series A Notes called for redemption shall cease to accrue; such Series A Notes shall cease to be entitled to any benefits or security under the Series A Note Agreement or to be deemed Outstanding; and the holders and beneficial owners of such Series A Notes shall have no rights in respect thereof except to receive payment of the redemption price thereof, plus accrued interest to, but excluding, the date of redemption. (h) SERIES A NOTES REDEEMED IN PART. Upon surrender of a Series A Note redeemed in part, the Paying Agent will authenticate for the holder a new Series A Note or Series A Notes equal in principal amount to the unredeemed portion of the Series A Note surrendered. 4. PURCHASE OF SERIES A NOTES. (a) MANDATORY PURCHASE OF SERIES A NOTES; NOTICE. Except as provided in paragraph 4(c) below, Series A Notes are subject to mandatory purchase at the Purchase Price: (i) on each Interest Payment Date applicable to such Series A Note; and (ii) on the effective date of any Substitute Series A Letter of Credit delivered in accordance with the terms and conditions of the Series A Note Agreement, if, but only if, such Substitute Series A Letter of Credit will result in a Credit Modification. The Trustee will prepare and cause the Paying Agent to send written notice of each mandatory purchase described in paragraph 4(a)(ii) above (a "Notice of Mandatory Purchase") to each Noteholder whose Series A Notes are being purchased, the Remarketing Agent, the Bank and the Borrower at least 15 days but not more than 60 days before the Purchase Date. No Notice of Mandatory Purchase will be given to holders or beneficial owners of Series A Notes if the mandatory purchase is being made as described in paragraph 4(a)(i) above. (b) PAYMENT FOR PURCHASED SERIES A NOTES. The Purchase Price of Series A Notes to be purchased on a Purchase Date shall be paid from Remarketing Proceeds available to pay the Purchase Price of such Series A Notes and, to the extent 11 12 Remarketing Proceeds are not available to pay the Purchase Price of such Series A Notes, from proceeds of a draw on the Series A Letter of Credit pursuant to the applicable provisions of Section 5.02(a)(iv) of the Series A Note Agreement. To the extent that sufficient moneys have been made available therefor to the Paying Agent or the Remarketing Agent, as applicable, by 3:45 p.m. on the Purchase Date pursuant to Sections 3.08 and 5.02 of the Series A Note Agreement, upon surrender to the Paying Agent of Series A Notes called for mandatory purchase as provided in the Series A Note Agreement, the Purchase Price therefor shall be paid in immediately available funds by the Paying Agent's or the Remarketing Agent's, as applicable, close of business on the Purchase Date. From and after the Purchase Date or, if later, the date on which such moneys are made available to the Paying Agent or the Remarketing Agent, as applicable, interest accruing on such Series A Notes shall cease to be payable to the prior holder thereof, such Series A Notes shall cease to be entitled to the benefits of the Series A Note Agreement and to such extent the prior holder shall have recourse solely to the funds held by the Paying Agent or the Remarketing Agent, as applicable, for the purchase of such Series A Notes as provided in Section 4.03 of the Series A Note Agreement. Notwithstanding any provision to the contrary herein or in the Series A Note Agreement, for so long as the Series A Notes are held pursuant to a book-entry system maintained by DTC, payments of Purchase Price with respect to such Series A Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) LIMITATION ON TENDERS. The holders shall not be required to tender any Series A Note for purchase on a Purchase Date if on such date, following the occurrence of an Event of Default, the Trustee shall have declared the principal of and interest on the Series A Notes immediately due and payable pursuant to Section 7.02 of the Series A Note Agreement. (d) In the event that any Series A Note purchased pursuant to a mandatory purchase is not delivered by the holder thereof on the date such Series A Note is purchased, the Borrower shall execute (if necessary) and the Paying Agent will authenticate and deliver a new Series A Note of like aggregate principal amount as the Series A Note purchased, the Series A Note purchased shall no longer be deemed outstanding and the owner thereof shall be entitled to receive only those funds held on deposit with respect thereto, and the new Series A Note shall, for all purposes of the Series A Note Agreement, be deemed to evidence the same debt as the Series A Note purchased and shall be remarketed, delivered and registered in accordance with the terms of this Series A Note and the Series A Note Agreement. 5. REMARKETING OF PURCHASED SERIES A NOTES. 12 13 (a) REMARKETING EFFORT. Except as otherwise provided in Section 3.08(a) of the Series A Note Agreement, the Remarketing Agent will use reasonable best efforts to remarket on the Purchase Date all Series A Notes purchased in accordance with the terms of Section 3.07 of the Series A Note Agreement and, to the extent such purchased Series A Notes are not remarketed on the Purchase Date, thereafter will continue to use reasonable best efforts to remarket such purchased Series A Notes, upon the terms and subject to the conditions of the Remarketing Agreement. (b) REMARKETING PROCEEDS. To the extent the Remarketing Agent has remarketed Series A Notes and has received funds representing a payment for such Series A Notes (the "Remarketing Proceeds") from the purchasers thereof, the Remarketing Agent will promptly forward the Remarketing Proceeds by wire transfer (or in such other manner as is acceptable to the Remarketing Agent) to the holders tendering such Series A Notes for purchase (or, if required pursuant to Section 3.08(b) of the Series A Note Agreement, to the Paying Agent). Except as otherwise provided below with respect to Bank Notes, until such transfer, all such Remarketing Proceeds shall be deposited in a separate, segregated account of the Remarketing Agent (or, if transferred to the Paying Agent as provided in the Series A Note Agreement, in a separate, segregated account of the Paying Agent) for application in accordance with the applicable provisions of Section 3.08(b) of the Series A Note Agreement, and until so applied shall be held in trust for the benefit of the holders tendering such Series A Notes for purchase. Notwithstanding any provision to the contrary herein or in the Series A Note Agreement, for so long as the Series A Notes are held pursuant to a book-entry system maintained by DTC, payments of Remarketing Proceeds with respect to such Series A Notes shall be made pursuant to the rules and procedures established by DTC and its Participants. (c) DELIVERY OF PURCHASED SERIES A NOTES. Series A Notes purchased with Remarketing Proceeds (other than Bank Notes) shall be delivered to the purchasers thereof upon receipt of payment therefor. Prior to such delivery, the Paying Agent shall provide for registration of transfer to the Holders, as provided in a written notice from the Remarketing Agent. 6. MONEYS TO BE HELD IN TRUST. All proceeds of a draw on the Series A Letter of Credit received by the Trustee and all money that the Trustee or the Paying Agent shall hold in, or shall have withdrawn from, the Series A Letter of Credit Fund or shall have received from any other source and set aside for the purpose of paying any of the Series A Notes, either on the Maturity Date set forth above or by purchase (other than as provided in Section 3.08 of the Series A Note Agreement regarding remarketing of Series A Notes) or call for redemption or for the 13 14 purpose of paying any interest on the Series A Notes, shall be held in trust for the respective holders or beneficial owners of the Series A Notes. Moneys received by the Remarketing Agent, the Paying Agent or the Trustee from the sale of a Series A Note under Section 3.08 of the Series A Note Agreement regarding remarketing of Series A Notes or from the purchase of any Series A Note will be held segregated from other funds held by the Remarketing Agent, the Paying Agent or the Trustee for the benefit of the Person from whom such Series A Note was purchased and will not be invested while so held. Any money that is so set aside and that remains unclaimed by the holders or beneficial owners for a period of five (5) years after the date on which such Series A Notes have become payable shall be remitted to the Borrower and thereafter the holders or beneficial owners shall look only to the Borrower for payment and then only to the extent of the amounts so received, without any interest thereon, and the Trustee, the Remarketing Agent, the Paying Agent and the Bank shall have no responsibility with respect to such money. 7. DEFAULTS AND REMEDIES. Upon the occurrence of certain events, and on the conditions, in the manner and with the effect set forth in Article VII of the Series A Note Agreement, the principal of all Series A Notes then outstanding under the Series A Note Agreement may become or may be declared due and payable before the stated maturity thereof, together with interest accrued thereon. The Series A Note Agreement directs the Trustee to declare an acceleration upon notice by the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement, and upon the occurrence of certain other Events of Default under the Series A Note Agreement. The Trustee has the right to accelerate the entire unpaid principal of and interest on the Series A Notes in certain events only with the Bank's consent, all as provided in more detail in Article VII of the Series A Note Agreement to which reference is hereby made. The owner of this Series A Note shall have no right to enforce the provisions of the Series A Note Agreement or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Series A Note Agreement, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Series A Note Agreement and except that any registered owner may institute action to enforce the payment of the principal of or interest on his Series A Note. 8. MISCELLANEOUS. Modifications or alterations of the Series A Note Agreement may be made only to the extent and in the circumstances permitted by Article IX of the Series A Note Agreement. 14 15 Executed counterparts of the Series A Note Agreement are on file at the principal corporate trust office of the Trustee. The holder of this Series A Note, by acceptance hereof, consents to all of the terms and provisions of the Series A Note Agreement. It is hereby certified that all acts, conditions and things required to happen, exist and be performed under the laws of the State of New York, and under the Series A Note Agreement precedent to and in connection with the issuance of this Series A Note have happened, exist and have been performed as so required, and that the issuance, authentication and delivery of this Series A Note have been duly authorized by the Borrower. Unless the Certificate of Authentication hereto has been executed by the Paying Agent by manual signature of one of its Responsible Officers, this Series A Note shall not be entitled to any benefit under the Series A Note Agreement, or be valid or obligatory for any purpose. 15 16 IN WITNESS WHEREOF, Hanover Direct, Inc. has caused this Series A Note to be executed in its name and on its behalf by the manual or facsimile signature of the President and Treasurer and attested by manual or facsimile signature of the Secretary of Assistant Secretary and sealed with the corporate seal of Hanover Direct, Inc., all as of the Date of Issuance set forth above. HANOVER DIRECT, INC. By: /s/ Jack Rosenfeld ___________________________ Name: Jack Rosenfeld Title: President and CEO ATTEST: By:__________________________ Name:________________________ Title:_______________________ [CORPORATE SEAL] By: /s/ Edward J. O'Brien ___________________________ Name: Edward J. O'Brien Title: Senior Vice President and Treasurer 16 17 CERTIFICATE OF AUTHENTICATION This Series A Note is one of the Series A Notes issued under the provisions of the within-mentioned Series A Note Agreement. NORWEST BANK MINNESOTA, N.A., AS PAYING AGENT By:___________________________ Responsible Officer Dated: __________________ 17 18 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPE THE NAME AND ADDRESS, INCLUDING THE ZIP CODE OF THE TRANSFEREE, AND THE FEDERAL TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) the within Series A Note and all rights thereunder, and hereby irrevocably constitutes and appoints ______________ Attorney to transfer the within Series A Note on the books kept for registration and transfer thereof, with full power of substitution in the premises. Dated:_______________ By:______________________________________ NOTICE: The signature of the Registered Owner above must correspond with the name of the Registered Owner as it appears on the registration books maintained by the Paying Agent. Signature Guaranteed By:_________________________ NOTICE: signature(s) must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. 18 -----END PRIVACY-ENHANCED MESSAGE-----